AN INTRODUCTION TO FUTURES - Discount Commodity Futures Trading
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COMMODITY FUTURES TRADING COMMISSION
PUBLIC ROUNDTABLE ON
COMMISSION’S PROPOSED RULEMAKING THAT CALLS FOR
THE COLLECTION OF ACCOUNT OWNERSHIP AND CONTROL
I NFORMAT I ON
Washington, D.C.
Thursday, September 16, 2010
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PART I C I PANTS :
CODY ALVAREZDivision of Market Oversight
KEITH ANGUISHAssociate Director,CME Group, Inc.
Systems Development
RACHEL BERDANSKYDivision of Market Oversight
ANDY BOOTHChief TechnologyNYSE Liffe U.S.
Officer
KARL COOPERChief RegulatoryNYSE Liffe U.S.
Officer
GEORGE CRAPPLECo-Chief ExecutiveMilburn Ridgefield
OfficerCorporation
R.J. CUMMINGSVice President,ICE Futures U.S.
Product Development
MARK FABIANVice President,ICE Futures U.S.
Market Regulation
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JIM FAYOffice of Information and Technology Services
KEVIN FOLEYKatten Muchin Rosenman LLP
FRANK FRANIAKPresident and Chief Executive OfficerWoodfield Fund Administration LLC
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PARTICIPANTS (CONT’D) :
JERRY GOLLEYOffice of Information and Technology
ANDREI KIRILENKO4 Office of the Chief Economist
Services
5 BARRY LEGROSVice President,
6 ICE Futures U.S.Application Systems
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GARY MARTINAITISDivision of Market Oversight
JIM MORANDirector, GlobalTechnologyCME Group, Inc.
Market Regulation Strategy and
JOHN NOWLINOffice of Information and Technology Services
JOSEPH OTTVice President, ComplianceKansas City Board of Trade
SEBASTIAN PUJOLDivision of Market Oversight
JOHN ROGERSOffice of Information and Technology Services
MELINDA SCHRAMMChairmanNational Introducing Brokers Association
RICK SHILTSDivision of Market Oversight
LESLIE SUTPHENIndustry Consultant
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I PARTICIPANTS (CONT’D) :
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RAY TUBRIDYManaging Director Derivatives Sales and Marketingand Product DevelopmentState Street Global Markets
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DAN UMSTATTDDirector of OperationsKansas City Board of Trade
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Rulemaking Committee Page :
could take
shortly.
PROCEEDINGS
(I:00 p.m.)
MR. SHILTS: All right, if everyone
their seats and we’ll get started here
All right, good afternoon and welcome
everyone. My name is Rick Shilts and I’m the
director of our Division of Market Oversight here
at the CFTC. I’m pleased to open this public
roundtable today to discuss issues related to the
Commission’s Notice of Proposed Rulemaking that
calls for the collection
related
active on U.S.
third
week. On
we held
roundtables
of ownership, control and
information, for all trading accounts
Futures exchanges. This is the
roundtable involving the CFTC staff this
Tuesday and Wednesday, as you may know,
with our SEC counterparts
on issues related to implementation
Dodd- Frank, related to swap data, repositories,
real-time reporting, and swap execution
facilities. Those discussions were very valuable
and I’m sure that
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of
today’s roundtable also will
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very enlightening.
In that regard, the purpose of the
roundtable today is for staff to gain a better
understanding of the flow of data to be collected
under our proposed rule. The information obtained
today should assist the CFTC staff in implementing
this proposed rule. I’d like to thank those
attendees who are participating on our panel and
those who are otherwise attending. I’d also like
to thank the staff at the CFTC for their hard work
in planning this roundtable.
For the record, I’d like to note that
all statements and opinions that may be expressed
and all questions asked by CFTC staff are
those of the staff and do not necessarily
represent the views of any commissioner or the
Commission collectively.
Before we begin, I’d like to note some
housekeeping items. I want to point out that this
is not the only opportunity for interested parties
to comment on the proposed rulemaking. The CFTC
has a mailbox into which anyone may submit
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comments and supporting materials. Submitted
comments will be read by staff to help us as we
implement this proposed rule. Please note that
the comment period deadline is now October 7.
Also you should know that this meeting is being
recorded. The microphones are in front of you.
Please press the button and you’ll see the red
light. That means you can talk and please
speak directly into it. When you finish, please
press the button to turn off the mic. And we
would also ask that you refrain from putting any
Blackberries or cell phones on the table as it
typically causes interference with our audio
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And now I would like to hand things off
to Rachel Berdansky, who is the Deputy Director
for Market Compliance in the Division of Market
Oversight, to make some opening remarks and get us
started. Again, thanks to all those participating
here today. Rachel?
MS. BERDANSKY: Thank you. I’d like to
echo Rick’s gratitude to each of our panelists.
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The Commission seeks to make this rulemaking a
collaborative process and this roundtable or
rather, rectangle table is being held in that
spirit. Commenters should feel free to submit any
additional comments arising from matters discussed
at this meeting. Also, commenters may refer to a
transcript of this meeting, which will be
published on the Commission’s website a few days
after this meeting. If panelists wish to comment
on the general policy of the proposed rule,
including cost, or suggest alternatives to what
the Commission has proposed,
written comments.
As Rick mentioned,
they may do so in the
the purpose of this
roundtable is for staff to gain a better
understanding of the flow of data to be collected
under the proposed rule. Because of the time
constraints of this meeting, it is essential that
we keep on topic and at least try to keep on time.
The Commission believes that ownership and control
information is fundamental to the effective
regulation of modern markets. With the Ownership
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and Control Report, also known as the OCR, the
Commission seeks to enhance market transparency,
increase trade practice and market surveillance
capabilities, leverage existing surveillance
systems and data, and facilitate the Commission’s
enforcement and economic research programs. The
Commission’s current plan is to have OCR data
submitted to the Commission by exchanges, for all
trading accounts active on an exchange. The
Commission understands that the exchanges will
need to adopt rules to collect OCR data from data
sources such as FCMs, IBs, CTAs, and CPOs.
For each trading account, the OCR will
include a trading account number, the names and
address of the accounts owners and controllers,
special account number if one has been assigned
an indication of whether the account is a
reportable account pursuant to large trader
thresholds, and other relevant information. A
major focus of today’s meeting will be identifying
who maintains each piece of OCR information and
the flow of this data. On display is a
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spreadsheet that lists each data point required by
the proposed rule, we will use this to guide the
first part of today’s meeting.
This roundtable meeting is broken out
into two general topic areas
data and OCR implementation.
sources of OCR
We would like to
begin by going through the list of data points,
determine who maintains the data point and how the
exchanges will obtain that data. Before we get
started, let’s go around the table and introduce
ourselves. I’m then going to ask those people who
submitted prepared statements or who have
requested an opportunity to make a statement to do
so. We ask that your statement not exceed five
minutes. Also, I am aware that at least one
panelist has prepared some PowerPoint slides
relating to data flow. We will save some time
approximately I0 minutes at the end of the first
panel for that presentation. At this point,
why don’t we go ahead and introduce ourselves.
MR. GOLLEY: My name is Jerry Golley.
I’m the deputy director for systems and services
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here at CFTC.
chief
MR. ROGERS: I’m John Rogers.
information officer at CFTC.
MR. NOWLIN: John Nowlin,
Architect at CFTC.
MR. FAY:
MR MORAN:
regulatory
MR
director,
chief
technology
I’m the
Enterprise
Jim Fay in OITS.
Jim Moran, director
and strategy at CME
ANGUISH:
of
Systems Development
Andy
NYSE
MR COOPER: I
regulatory officer
MR BOOTH:
technology
Group.
Keith Anguish, associate
at CME Group.
am Karl Cooper. I am the
of NYSE Liffe U.S.
Booth. I’m the chief
officer at Liffe U.S.
MR OTT: Joe Ott, vice president of
compliance, Kansas City
MR UMSTATTD:
operations, Kansas City
MR CUMMINGS:
president,
Exchange.
product
Board of Trade.
Dan Umstattd,
Board of Trade.
director of
MR. LEGROS : Barry
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Legros, vice
www. andersonreport ing. netAnderson
R.J. Cummings, vice
development, Intercontinental
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president,
president,
International
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application systems, ICE Features U.S.
MR. FABIAN: Mark Fabian, vice
market regulation, ICE Features U.S.
MS. SCHRAMM: Melinda Schramm, chairman,
Introducing Brokers Association.
MR. CRAPPLE: George Crapple,
co-chairman of Milburn Ridgefield. We’re a CPO
the Board of the NFA and the
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FIA.
MR. TUBRIDY: Ray Tubridy, managing
director of State Street.
MS. SUTPHEN: Leslie Sutphen, currently
industry consultant, formerly with Newedge.
of the
associate
Group.
MR. KIRILENKO: Andrei Kirilenko, Office
Chief Economist, CFTC.
MR. MARTINAITIS:
deputy director of
Gary Martinaitis,
Market Information
advisor
Division
MR. ALVAREZ: Cody Alvarez, attorney
at DMO, CFTC.
MR. PUJOL: Sebastian Pujol, CFTC,
of Market Oversight.
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MS. BERDANSKY:
Frank Franiak on the phone.
introduce yourself? Okay.
I believe we also have
Frank, do you want to
Why don’t we just go
ahead with our there will be, like I said,
several people have submitted opening have
opening statements or requests to make a
statement. Leslie?
MS. SUTPHEN: Okay, thank you. Mr.
Shilts and members of the Division of Market
Oversight, I appreciate the opportunity to comment
on the challenges of approving sources of
ownership and control information, as well as
discussing how best to implement protocols for
receiving this information. My comments today
will reflect my experience implementing electronic
trading systems both as a managing director at
Newedge Group and as an independent consultant
over the past 13 years. They are a reflection of
my own opinion and not that of Newedge Group or
any other entity.
I applaud the efforts of the Commission
to improve the identification of trading patterns
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and control in today’s complex markets. I will
confine my comments today to issues surrounding
identification of control, as I believe the other
participants will have more to say on issues
having to deal with ownership information. I
specifically want to talk about the setting up of
unique user IDs which may translate to a specific
field on the execution trade feed, such as Tag 50
or Sender Sub ID. In the way the futures industry
operates today, the identification of specific
controllers of trading and the associated
information surrounding the controller is non-
standardized, dispersed and not specific enough to
enable precise identification of the controller.
The non- standardization has to do with the nature
of user IDs themselves. User IDs are generally
freeform text, varying depending on the
requirements of the trading platform being used,
the exchange to which the trade is being routed or
the identification requirements of the clearing or
executing firm. The lack of standardization often
complicates the setup of users across multiple
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markets.
For example, on some exchanges it is
necessary to use the exchange assigned user ID and
on others, the user ID cannot be longer than six
characters. In addition, some trading
requirements such as sharing an order book among
traders can result in multiple order router IDs
being mapped with single exchange ID. Even if the
industry could come up with an standardized
protocol for the setting up of user IDs, there is
currently no uniform approach to the assignment of
IDs, the collection of information on the user,
and the control over whether the ID is active or
not. Generally, the FCM will delegate the control
over who has access to the user ID to the client
itself as practically the FCM cannot definitively
identify who is logging in at a given moment.
Although many FCMs do set up detailed and complex
databases with the names of the traders behind the
IDs and possible possibly some contact
information. Maintaining these databases is a
manual and laborious process with no easy way to
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automate and maintain this information. In many
cases, the information is located in disparate
spreadsheets used by support desk personnel.
Finally, even if the industry could
adopt agreed standard procedures for setting up
user IDs and maintaining the data behind the user
ID, the user ID itself is not sufficiently precise
to correctly identify the controller in all cases.
Generally, in the case of screen trading, there is
a single unique ID for each screen. However, if
the screen is used by a broker or fund manager,
the user is placing trades for multiple
controllers many of whom are not necessarily
identified by a unique account number or user ID.
In the case of automated trading, there
may be a single user ID for multiple algorithms or
strategies or no unique user ID because all
traffic goes through a single FIX session. The
exchanges generally require additional
identification information beside the user ID to
be passed for example, in Tag 50, in order to
facilitate identification of a specific trading
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strategy or trader. However, at this time it is
not always easy to populate this information
technologically depending on the architecture of
the trading platform. And the FCM does not always
know that multiple algorithms are using the same
identifier, making it difficult for both the
exchange and the FCM to corroborate this
information this identification.
I believe the industry can continue to
work together to come up with a more standardized
approach to setting up user IDs, codifying and
collecting information, and agreeing with
exchanges in how this information can be passed.
However, it is important to note that migrating to
this new approach will require fundamental
re-architecture of user setups across the
industry, something which typically can take
several years to accomplish and at great cost.
Thank you.
MS. BERDANSKY:
MS. SCHRAMM:
Thank you.
Thank you.
Melinda?
Unlike Leslie,
I’ve reached the age where I have to take my
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glasses off to read I
Chairman of the Board of
Thank you for including us
Founded in 1991,
’m Melinda
Directors
Schramm,
of the NIBA.
today.
the National
Introducing Brokers Association, or the NIBA,
not for profit organization which represents
Introducing Brokers,
Advisors, CTAs. Our
approximately
members trade
transact business in
futures and options
appearance today are
is
IBs, and Commodity Trading
membership includes
350 registered entities. While our
in all markets, they primarily
the retail sector of the
industry. Our statements and
representative of our IB
membership only.
a forum in which
a voice in the
The NIBA’s mission is
IBs can learn, network,
many developing issues
the
a
to provide
and have
affecting
daily activities in their offices.
Our goal is to support the IB community
so that they can better serve its customers and
grow the revenues of their businesses. NIBA’s
have three tomembers typically
research,
Anderson Court
twelve sales,
total, in theirand support staff, in
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office. In fact, many IB registrants still have
one or two person offices. Each office may serve
as 50 to 400 customers, which could be solicited
face-to-face or through web-based interactions.
The majority of customers who trade through an IB
office open individual accounts with an initial
deposit of $30,000 or less. About one-third of
NIBA’s members are licensed as both IB and CTA, or
they conduct other financial or futures-related
business such as securities or insurance programs.
The typical IB member nets less than a
quarter million dollars per year in personal
income. NIBA acknowledges that it’s in the best
interest of all American business to know who
their customers are, and how, and by whom certain
decisions are being made. We’re ready to work and
are working to educate our members in the upcoming
NFA amendments to the Know Your Customer Rules and
the Associated Risk Disclosure Statements. By all
standards, NIBA’s members and, indeed, probably
all IBs, are small businesses. They’re typically
owner operated with little or no clerical support.
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As typically as correctly pointed out
in the proposal, much of the information required
by the OCR such as the customer’s name and the
date of birth is already obtained by the IB
office which opens the account, in order to comply
with the anti-money laundering regulations. And
that information is being maintained by both the
IB and its clearing FCM. Generally, IBs do not
transact business for funds, pools, or other large
accounts which may require any entity other than
the individual account owner to be designated as
the account controller. To the extent that they
do, the Commission Rule 1.37 controls IBs
particularly Guaranteed Introducing IBs or GIBs
and work hand-in-hand with their clearing FCMs.
These FCMs their root data sources
are already requiring and maintaining most of the
OCR information proposed. While NIBA agrees with
the FIA and others that a single uniform protocol
for reporting should be adopted, we do not agree
that this reporting should be done at the IB
level. Weekly reporting would in most cases be
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unnecessary. As we have previously pointed out,
FCMs are already collecting all the information
necessary to open an account on their current
account forms.
Additionally, IBs should not be required
to submit any such reports directly to the
Commission. In fact, in the case of GIBs in
particular, all such communications with any
reporting agency such as the NFA is nearly
always required by the clearing FCM to be
submitted to or through that FCM in order that the
FCM can comply with its supervisory duties. Given
these realities of the IB community, we believe
that the majority of our members are small
entities, as that term was defined in the
Regulatory Flexibility Act. In this context, we
look forward to discussing the impact of this
proposed rule and sharing our perspective.
Thank you for the opportunity to
participate in this meeting. The NIBA is ready to
discuss any issues regarding this proposal and any
that you may have in the future regarding the IB
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community in general.
opportunity.
MS. BERDANSKY:
Joe?
MR. OTT:
Thank you for the
Thank you, Melinda.
The Kansas City Board of Trade
would like to thank the Commission for hosting the
public roundtable today to discuss the Ownership
and Control Report currently being proposed. We
feel it is paramount to assume an industry-wide
committee, including the CFTC, to discuss the
issues of how to implement the OCR in a manner
that will both satisfy the CFTC’s regulatory needs
and as well as to avoid being an undue burden to
the root data sources in designated contract
markets.
KCBT agrees that the account ownership
and control information report will enhance market
transparency. We also agree it will increase the
Commission’s trade practice and market
surveillance capabilities as well as leveraging
existing surveillance systems and data and
facilitating the Commission’s enforcement research
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programs. The unprecedented changes recently seen
in the futures industry are currently as a result
of the shift in the style of trading from pit
trading to electronic trading has necessitated
many changes in the manner in which we regulate
our markets.
The anonymity of the market participants
in electronic trading has made it difficult to
identify traders and trading accounts quickly. It
has been our experience that some clearing members
struggle with identifying the user and/or account
number for a particular trade unless other
information is given to them for example, a
session ID, a firm ID, or a trader ID. Market
transparency is a crucial element of any market
surveillance system. The integration of large
trader and trade registered data into the OCR will
exponentially increase market transparency. Once
the implementation of the OCR takes place, both
the CFTC, as well as the exchange compliance
staffs, will benefit greatly from the wealth of
information at their disposal regarding the
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identity of market participants and the
relationships that exist among them.
However, KCBT still believes that the
most efficient way for the information to be
submitted to the CFTC is for the FCMs and clearing
members to submit the information directly just as
they currently do with KCBT large trader
reporting. The root data sources are in
possession of the specific data points being
proposed. Therefore, it makes no sense for the
root data sources to report this information
directly to the Commission. Of the specific data
points required by the proposed OCR, the only data
point KCBT currently has in our possession is the
trading account number. The CFTC is already in
possession of many of the specific data points
required by the OCR through large trader
information namely, the CFTC Form 102,
Identification of Special Accounts, as well as
exchange trade registrant information. Therefore,
the CFTC is in a better position than the KCBT to
integrate these existing resources and supplement
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them with ownership control information for all
active trading accounts. It seems unnecessary to
put a third party in the middle to submit the
information to the Commission.
Requiring each contract market to report
the information for every active account would
result in duplication, as the same account number
may trade in similar commodities across multiple
exchanges. As an example, the same account number
may trade KC, Chicago and Minneapolis Wheat.
Therefore, Kansas City, CME and Minneapolis would
all be reporting the information for the same
account. In addition, there are currently certain
KCBT clearing members, for open interest reporting
purposes that have their home office in either
Chicago or New York and report their positions to
their Kansas City branch office who in turn
reports to the clearing corporation. If this same
logic was used for the OCR, then the information
would have to be reported three times from the
home office to the branch office to the Kansas
City Board of Trade and on to the Commission.
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KCBT agrees that uniform reporting
protocols are an absolute necessity. The CFTC has
standardized the content and format of all trade
registered services submitted to them which are
now required to be fixed ML trade capture reports.
Therefore, it would seem logical that the
Commission and root data sources could develop a
similar industry-wide standard for the OCR. It
would seem to make the most sense to have the CFTC
and the root data sources come up with an
industry-wide reporting standard directly to the
Commission, versus all the exchanges having to
build a system for their root data sources to
report in to. The CFTC could use their existing
large trader reporting system to accomplish the
goals of the OCR by requiring that each root data
source report the required information for all
active accounts.
Regarding the specific data points
required by the OCR, KCBT questions whether the
date of birth for each active account is a
necessary data point to collect. Neither current
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CFTC regulations, nor NFA rules and regulations,
require an FCM to collect the customer’s date of
birth. Currently, NFA Compliance Rule 2-30 only
requires an FCM recording of an approximate age of
the customer. Effective January 3 of 2011, NFA
rules will require the FCM to record an
approximate age or date of birth. It is the
opinion of the Kansas City Board of Trade that
requiring a first, middle and last name, as well
as the address of their primary residence, should
be sufficient to achieve a unique identification
for each active account.
The OCR information will be difficult to
obtain from omnibus accounts because the
underlying accounts are not carried on the
clearing member’s books. Furthermore, certain
omnibus accounts may not be members, or may be
nonmembers of the Kansas City Board of Trade,
which raises a question as to the regulatory
authority the KCBT would have over them. The CFTC
would have regulatory authority over all FCMs and
hence another reason why the root data sources
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should report directly to the Commission.
We are currently not in a position to
state with any certainty what the cost would be
for the Exchange to provide the OCR until further
details are forthcoming regarding an
industry-approved standard for the OCR’s content,
format, and the time and manner of its
transmission. Once more details become available,
we will be in a better position to estimate the
timeframe necessary for completion and the costs
associated with such. However, it is clear that
each contract market will incur significant
service storage and programming costs to ensure
they have the ability to store the information
received if the CFTC requires each contract market
to receive, collate, and correlate the data into a
single record for active accounts in our market
and then to transmit the information to the CFTC.
Thus, you would have programming and service
storage costs at each level, whereas if the
information was submitted by each data source
directly to the CFTC, you could eliminate one of
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these layers of costs.
It seems the best method for reporting
the information would be to be submitted by the
root data sources directly to the CFTC. The
Kansas City Board of Trade appreciates the
opportunity to participate in the political
roundtable today.
Thank you.
MS. BERDANSKY: Thanks, Joe. Jim?
MR. MORAN: Once again, I’m Jim Moran
from CME Market Regulation. Again we thank the
Commission for having this roundtable and for
giving us an opportunity to speak here.
You know, CME Group operates for DCM,
CME, CBOT, NYMEX, and COMEX, and we recognize the
need for the Commission to have their annular
account identification information and we applaud
the Commission in their efforts to require this
information in an automated and standardized way
across clearing firms. CME Group Market
Regulation already maintains its own account
ownership databases and it routinely uses that in
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the performance of our regulatory duties. We have
made substantial advancements on these databases
in recent years and we believe that these types of
advancements make us more productive.
CME believes that automating the account
ownership data submission and eliminating the
manual processes and hard copy methods currently
in place is overdue and very necessary. CME has a
stake in the project and a commitment to help make
it successful if we can. In its current form, we
are concerned that the Commission’s proposal
requires certain data elements that clearing firms
do not have or which cannot be obtained without a
massive re-documentation project of hundreds of
thousands of customer accounts. In some
instances, the clearing firm may have the data,
but it is not in the databases that would be used
to provide this information. We also believe that
some of the data elements sought by the Commission
have limited regulatory value and that this
proposal should be modified to be less expensive
for the industry, quicker to create and market
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Rulemaking Committee Page : 31
bring to market and that it
redundant reporting, all while
desired regulatory objectives.
currently exists with respect to
overlap of information required
which is used in the large trader system.
We believe the Commission should
this
core
should eliminate
still obtaining
The redundancy
a substantial
in CFTC Form 102,
take
opportunity to modernize and automate the
information required under Form 102, rather
than require that the industry engage in two
separate, but highly redundant, account
identification processes.
I’d like to briefly summarize some
recommended changes to other recommended
changes to the OCR proposal that would be
necessary for a successful project that would
minimize disruption to the industry, while
hopefully not using up all the resources that
be necessary for other
Dodd- Frank Legislation.
proposal would entail a
effort between the
Anderson Court Reporting --
the
will
changes anticipated by the
We also believe that this
lot of collaborative
exchanges,
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and the CFTC, and we think that it is something
that can work in a practical and beneficial
manner.
Specifically, we believe that the
reporting should be done by the carrying clearing
firm and not by the executing firms, or the IBs.
It’s at the carrying broker where the ownership of
the trade is established and we believe that
that’s the most logical place where this reporting
is done from. Also, we believe that omnibus
accounts have long existed in the futures industry
and should not be functionally banned by requiring
a carrying firm to obtain all of the end client
information for accounts within the non-disclosed
omnibus. Instead, omnibus accounts should be
identified as such in the OCR and regulators can
request ownership or control information directly
or through the clearing firm on an as needed
basis.
Third, with regards to trading control,
there’s a statement in the OCR proposal that
trading authority is sufficient to qualify as
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controller. This is not consistent with the
conventions for reporting control in large trader
position reporting and the CFTC should maintain
that the existing definition of trading control
which is more of a legal control pursuant to a
power of attorney or a situation where independent
account controllers are not aggregated for
position limits
the OCR as well.
should be held and applied to
As far as data, there’s 28 data
items on the spreadsheet in front of us. We
believe that about 14 of those directly overlap
with the CFTC Form 102. And perhaps I0 or 12 of
those the data already exists in the firm’s
system, but, you know, some things in terms of
reporting, would have to be would require a
system change in order to implement. The
remaining elements, we believe, are either not
necessary or have limited regulatory value. These
items include the fields for owner and controller
birthdates, fields for the NFA ID number, and
fields relating to the dates that various reports
are made.
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We believe that simply getting the
report should have a date on it and we don’t need
a separate field to record dates. Also, the
automated system identifier that is proposed is
really not something that is associated with an
account. An account can have, you know, a lot of
different parties doing different types of trading
and it isn’t really the best place it’s not the
best place to identify when an automated system is
used. Also, we believe that there should be some
kind of threshold of volume. Many customers are
small and while we still aren’t sure exactly what
that threshold should be, you know, customers that
trade very small
small quantities
and just occasionally, in
there are so many of them
that, you know, having the flow of that data in
the database has the potential of just cluttering
up the information and actually making this a less
efficient process.
So CME believes that, you know, we
should all come to the table and begin discussing
how we can make this proposal work and do it in a
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way that, you know, is good for the markets, is
good for transparency, but yet does not impose an
undue burden on our participants or our firms.
Thank you.
MS. BERDANSKY: Thank you, Jim. I
believe that we have one more panelist who has
joined us via telephone, Frank Franiak. Frank, do
you want to introduce yourself, please?
MR. FRANIAK: Yeah, hello. This is
Frank Franiak. I’m the president of Woodfield
Fund Administration. We are a fund administrator
that handles hedge funds as well as futures pools.
I have no initial statement to provide.
MS. BERDANSKY: Thank you. At this
time, I’m going to turn it over to
MR. FABIAN: Rachel, if you don’t mind,
I’d like to make a short statement on behalf of
ICE. I’ll keep it short promise. Is that
okay?
Again, I’d like to thank DMO and the
Commission for organizing this roundtable,
inviting ICE to it to express our opinions and
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thoughts on the OCR collection proposal. This is
an important topic and has a significant impact on
ICE as well as the other entities sitting around
this table as well as the firms that are going to
be supplying the data to us. As we expressed in
our written comments that we submitted last year
in answer to the ANPR and will likely reiterate
some of those in a further comment letter in
response to the most recent rulemaking proposal
we understand and agree with the initiative to
collect this information. We think it will be
very useful in enhancing our systems and our
ability to do our surveillance in trade practice
reviews. It will definitely make it more
efficient. It will take something that we do
manually now in terms of getting a lot of this
information and make it a more automated and
quicker process, having it right at our fingertips
as opposed to having to request it manually.
At the same time, we recognize that the
proposed OCR initiative will demand a
substantially significant amount of time and
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resources to develop and implement not only for
those reporting entities who may be involved, but
also for anyone who is supplying the root
information. As noted by the Commission, the
successful implementation of this proposal is
going to require effective communication and
coordination between all parties involved,
including the Commission, so that we achieve the
desired results. However, at the same time, we
need to work together to determine the most
effective and efficient means by which to collect
that OCR data.
And in the interest of keeping time
short, I would like to just echo some thoughts
that we had made in our original comment letter,
and that has been made by the Kansas City Board of
Trade here today, which are in regard to a more
efficient process -- we believe of having the
reporting excuse me the root source data
providers report the information directly to the
CFTC. It’s a one stop shopping approach, as
opposed to then reporting to multiple different
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reporting entities. It also alleviates potential
issues that may arise as Joe alluded to
where firms may report the same account to
multiple exchanges and, therefore, each exchange
has different has rules that require the
submission of this information in the event that a
firm does not properly report some piece of that
data, and some kind of disciplinary action is
taken.
We you know the question becomes,
okay, they report to multiple exchanges, whose
jurisdiction are they under? Who takes
disciplinary action? Do all the exchanges they
report to take a disciplinary action or some kind
of corrective action? So without going into any
further detail, I again would support a lot of the
reasons that Mr. Ott from the Kansas City Board of
Trade enumerated, with respect to having the
information flow directly to the CFTC into a
common repository which then can be either
distributed to the various exchanges that need it,
or the various exchanges can download the
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information depending on the accounts that are
active on their exchange.
In reference to which accounts should
report, obviously the Commission has said that
they would like to see more information than just
those that are large traders and they alluded to
wanting the community or the user group here today
to define for them some other parameter that would
capture most of the active trading. And we would
agree that some kind of a parameter that is linked
to volume, and/or frequency of trading, that would
identify the most active accounts -- not
necessarily by large trader status, but by
frequency and volume of trading that are active
on an exchange and in the markets, as opposed to
trying to collect all the information from every
account that is active because there are so many
small accounts that are active. It may just be
much more burdensome than trying to create a
minimum level of reporting.
So, like I said, I was going to keep it
short. And we look forward to addressing any
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questions the DML may have and we look forward to
raising other questions and comments that we may
have, as well. Thank you.
MS. BERDANSKY: Thank you. At this
time, I am going to turn it over to Sebastian to
start Panel One. Sebastian?
MR. PUJOL: Thanks, Rachel. And thanks
to everyone for coming. If you guys could sort of
turn your attention to the screens that are around
you, we’re going to start with the chart that’s
represented here. What we’re trying to do is
we have a few specific goals with this, but
fundamentally we want to understand where the data
resides and if it’s not in places where it needs
to ultimately be, what the obstacles are to
getting there whether they be practical, or
legal, or so forth. With that in mind, there’s
four specific things that we want to make sure we
get out of this chart as we complete it. And by
the way, this includes every data point that was
proposed in the OCR.
The first thing we want to ask is,
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obviously, who possesses each of these data
points? The second question is, if you possess
it, are you an initial holder of the data or is it
something that is sent to you in the regular
course of business by someone else? The third
question is, for the data that you possess, what
do you routinely share? And I’m not sure this
question will be so applicable for DCMs, but for
downstream sources or upstream sources for
DCMs. And for the things that you don’t routinely
share, what’s the reason? Is it that there
typically hasn’t been a need? That there is some
restriction around maybe the information is
protected by the privacy law of some jurisdiction
that prohibits you from sharing it? Is it a
competitive concern? You wouldn’t want someone
else to know this information. Those are the
sorts of questions we’d like to have answered.
Also, for some of these data points, I
think that maybe the answer would be that most of
the time it’s this, but here are the exceptions.
I think we’d like to note, at least on the first
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pass, that those exceptions exist, but save the
sort of detailed discussion of what the exception
is until after we’ve at least understood what the
norm is.
Finally, there are 28 data points here,
but I suspect that many of them are related. So
if as we go down them if folks want to group
them together and say we can discuss these two or
three as a single set, that’s fine as well. So,
with that being said, we’ll just go ahead and get
started with the first point the trading
account number. And the trading account number we
refer to here is what we receive from the DCMs in
the trade capture reports. And I’m presuming that
well, I won’t presume anything -- I will let
you guys sort of let us know who is in possession
of that account number.
MR. COOPER: Sebastian, thanks. I just
before we even get started I kind of wonder
about the form. You have one column for FCM and I
would think that maybe we need to be thinking
about. You know, clearing members, and
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non-clearing members, and members of exchanges,
and nonmembers of exchanges. So we certainly have
business that comes to NYSE Liffe U.S. that comes
from a nonmember, non-clearing firm, that’s, you
know, then passed to an executing broker and is
cleared at a third firm potentially, so
MR. PUJOL:
MR. COOPER:
MR. PUJOL:
Absolutely.
If so
If we need to be more
granular, we can do that.
MR. COOPER: quite frankly, the it
all depends on what you’re trying to get. If
you’re trying to get that business is going to
come from a nonmember, non- clearing firm, the
identity of the customer behind that assuming
they don’t have an omnibus account for yet another
nonmember, non-clearing firm, or foreign IB, you
know, it’s what we’ re requiring here is it
would be some sort of cascade of information from
the nonmember -- non-exchange member firms to
exchange member firms to, possibly, clearing
member firms to exchanges, and then to you.
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MR. PUJOL: So, with I mean we can
certainly your answers can be more granular.
But with that in mind, let’s still try to go down
sort of data point by data point and just account
for each one of them. And we can start with
number one. I mean certainly
in and
MR. FABIAN:
MR. PUJOL:
MR. FABIAN:
MR. PUJOL:
MR. FABIAN:
You just want us to chime
Yeah.
Okay.
Absolutely. Yeah.
Obviously, from the DCM
perspective, there’s going to be a trading account
number in our cleared trade registers which we
forward along to the Commission on a regular
basis. So that’s obviously exists on the DCM.
MR. PUJOL: And I’ll ask one follow up
on that. I heard some in the opening
statements some suggestions that numbers could
come from different places you know, that
information could come from somewhere other than
the DCM. I think that one issue that we have had
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here at different times is that or the reason
that we are sort of looking for this trading
account number from the DCM is we want to make
sure we can synchronize the data we get on the
Trade Capture Report with the data that comes from
through an OCR Report. So, you know, we don’t
need to address that in detail right now, but just
so you are aware for this to be useful to us
we have to be able to synchronize it to other data
sources that are already coming in the building.
That’s why that’s one of the reasons why we sort
of were looking to the DCMs as a natural focus for
this.
So let’s move on to, I think, a related
set of accounts the names, dates of birth,
addresses I think we can discuss those
together. And again, to address some of the
comments, the reason that we have gone to this
level of detail is because we want to assure a
unique identification. We don’t want to worry
about two John Smiths or, is John Smith the same
as John S. Smith?
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MS. SUTPHEN: You know, before you move
on, I think it’s important to note that the
trading account number really resides at the FCM.
The data the freeform data gets passed to the
DCM, obviously, but the account is created and
held and the useful information surrounding the
account is at the FCM. So I think it’s you
know, I don’t think we should just say the DCM is
the repository for that data.
MR. FABIN: I agree with that. I just
didn’t want to speak on behalf of the FCMs since
I’m with the DCO.
SPEAKER : And, Leslie, IBs would agree
with that also. Thank you.
know
MR. PUJOL: And by the way, we you
we don’t need to be overly formalistic.
mean, whenever somebody wants to speak up, speak
up. I think that would be more useful.
MR. MARTINAITIS: Feel free to disagree
with any typing that doesn’t capture any ideas
that are put out here. Thank you.
SPEAKER: All right. So do we want to
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address the names, dates of birth, addresses?
SPEAKER: If I could, one thing I want
to point out about names first name, middle
name, last name. I think that for the FCM they
have this information in their systems first
and last name. Middle name is something that most
systems don’t capture today. And if you think
about all the different applications that you fill
out in your personal life, the way middle name is
handled is very random. And so, what is a concern
is the middle name.
MR. PUJOL: Just to follow up on
something that Carl said. As we talk about FCM,
if, in your answers, it’s appropriate to
distinguish clearing FCM or nonmember FCM or, you
know, more granular, then please do so.
MR. OTT: Sebastian, I’d like to point
out again that I totally agree that there could be
more than one John Smith, but to me when you’re
combining the name with the address to me
you’re going to have something unique right there.
I’d be very surprised to see John Smith at the
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same two of the same addresses. Therefore I’ll
say it again, I feel like the date of birth is not
necessary if you’re just trying to get a
uniqueness out of this.
MS. SUTPHEN: And to enhance that, I
don’t believe the date of birth is collected in
all cases at the FCM level. It’s probably scanned
when the account is opened, maybe on a driver’s
license or a passport, or something like that, but
it’s not actually coded into any kind of database,
generally. Maybe you as was said earlier we
estimate the age, but it’s not typical practice to
record the date of birth in our systems.
MR. MARTINAITIS: You mention about
copying a license or so forth that raises an
interesting point as well. I think it would be
nice to distinguish between things that might be
captured at some level, but that are not typically
digitized and, therefore, you can say the data
exists, but sending it into a report would be a
whole different level of effort. So, for date of
birth, is are you saying that that it probably
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MS. SUTPHEN:
document of some sort.
digital form.
MR. MARTINAITIS:
That would generally be a
It would not be in a
Okay. But again, I
don’t think it’s a requirement at this point. So
it may not be captured at all.
MR. FABIAN: I think we’ve kind of
discussed this internally, and we’ve heard that in
Canada it is illegal to request the date of birth
from a citizen in Canada. You can provide it at
will, but it is illegal to request it. So if
there are Canadian accounts that are active on our
exchanges that would be required to post that
information, I think it may be an issue. I don’t
know if it’s being requested by a Federal entity
in the U.S., maybe it’s not the same issue. But
if it’s being requested I believe is being
requested by a firm, it is illegal to request that
information. You can confirm that, but I just
thought I would share that just so people would be
aware that there is potentially an issue with that
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in Canada.
MR. PUJOL: When we talk about the firms
here, are we is it always the clearing firm we
can safely assume who will have this information,
or
MS. SUTPHEN: Well, ultimately the
account ownership information is with the clearing
firm. Often the executing firm doesn’t know the
ownership of the account, so yeah, your
clearing firm, and even what ends up being on the
trade register is really linked to what’s the
information at the clearing firm, I would say. So
that distinction is really I mean, it’s the
clearing firm that is really the one that opens
that particular type of account.
MR. PUJOL: Is that the case or is that
not the case for trading account number?
MS. SCHRAMM: Speaking for introducing
brokers, they often use a driving license or a
passport in order to satisfy the need to know
their customer. But if it isn’t a requirement on
the account form that they’re filling out, or
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helping the customer to fill out, then they will
not require any further documentation or recording
of that information.
MR. TUBRIDY: Sebastian, to answer your
question, yes, trading account would be with the
clearing member.
MR. PUJOL: Thank you. Does anyone have
anything further they want to say just in terms of
who possesses those three data points those
four? So let’s move on now to number 6, 7, 8.
Here, in this case, we’re talking about an owner
that is not a natural person.
legal entity.
SPEAKER:
number. That is
MR. PUJOL:
SPEAKER :
It’s some sort of a
Before we move on, NFA ID
Oh, yes. Okay. Thank you.
That is information that is
currently not captured by the clearing member.
It’s available, but it’s not recorded in any
system.
MR. PUJOL: Thank you. All right, now
let’s move onto 6, 7 and 8. These are owners who
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are not natural persons.
MS. SUTPHEN: Sebastian, as a point of
clarification, very often not natural person
owners are behind an omnibus account of some sort.
So if they’re opening their account directly with
the clearing firm and on the books and records of
the clearing firm, then this information would be
captured, but it would not necessarily be captured
if they are dealing through an omnibus account of
a foreign broker.
MR. PUJOL:
point. Thank you.
All right. So that’s a fair
Let’s sort of leave out for
now the omnibus account situation. Is this
again this is information residing at the clearing
firm level?
level.
MS. SUTPHEN: It’s at the clearing firm
MR. COOPER: Are you referring
(interruption) point and time are you referring
to?
MR. PUJOL: You know, I’m not sure by
I would say at any moment in time. I don’t know
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MR. COOPER: I mean, some of this data
flows into a DCM, you know, for a larger trader.
Or we also, you know, identify accounts for
various other reasons.
identified at the CME.
Member accounts are all
You know, sometimes you
know because we see some trading activity and
we want to know who it is once we identify an
account, we put that in our databases. And we do
that routinely, so you know, the DCM, you know,
may have some of this data at various points, but
that doesn’t mean we have it for every account or
we have it at every point in the cycle.
MR. PUJOL: You’re describing it in sort
of information that you collect as needed, or you
might collect it pursuant to some various programs
you have going on, but it’s not for every account.
MR. COOPER:
MR. PUJOL:
Correct.
So, if we move on a little
bit further down. At this point, I think we can
assume the NFA ID answer is the same as it was for
natural persons, correct?
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SPEAKER : Yes.
MR. PUJOL : So
MR. MARTINAITIS :
covered this. The
this information
I’m not sure if we
you were talking about when
I’m sorry. Jim, you were
person name,
business address, ID number? Is it maintained so
that if things change, it’s updated? Do they
maintain these updates?
SPEAKER: Yes.
ability. Yes.
MS. SUTPHEN: Yes, to the best of their
MR. PUJOL: In those cases, is it being
fed to them?
a few cases here, but is it
from somewhere else?
MS. SUTPHEN:
I mean, we’ve said clearing firm in
are they getting it
Well, they have to get it
from the customer. I mean they have a fiduciary
responsibility to keep that information and a
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account is the FCM the party
FCM do they have the non-natural
talking about when this information is accurate.
Whether, you know, at the initial opening of the
the clearing
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regulatory responsibility to keep that information
up to date. So, you know, it’s part of KYC to
make sure that you’re having a constant contact
with your customer and validating that
information.
MR. MARTINAITIS: So there’s not a third
party in between? It’s directly customer to
clearing member?
MS. SUTPHEN: For ownership?
MR. MARTINAITIS: Yes.
MS. SUTPHEN: It’s generally between the
clearing firm and the owner.
SPEAKER: Okay. Thank you.
MR. TUBRIDY: Yes, just maybe said a
different way, the process to open an account and
to register an owner in the FCM system is the same
whether it’s a natural person or a non-natural
person. And so you record all the same data
points. The requirements are slightly different,
but the main data points you do record
especially these.
MR. COOPER: And if you’re joint BD
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under SEC rules, you have a duty under
17-A-3-A-16, or something, to refresh that
information every 36 months so. That’s assuming
that your future systems and security systems all
feed each feed the same database.
6 MR. PUJOL: Let’s move on to the account
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controller questions. And I understand that, Jim,
you raised an issue around whether our definition
of account controller is appropriate? But so
let’s I’m not sure if we can answer this
II
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question with sort of, leaving the exact
definition aside for a second but as we’ve
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proposal, at least, can we discuss who has that
data?
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anywhere, it would exist at either the executing
firm or the clearing firm at the FCM, I would
say. But I think here is where from you know,
from 9 until number 13 it’s where that data would
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22
be the most spotty right now. Where that would
not be necessarily collected systematically if
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they’re not a large trader reporting and, if we
did collect it, it would not necessarily include
all this information. And it would not
necessarily be on the trade register.
MS. BERDANSKY: Leslie, you stated, you
know, if you did collect it, what would be the
instances when you would be collecting it?
MS. SUTPHEN: It has to do with user IDs
and trying to map them to the person who is
responsible for trading and most large FMCs that
maintain large electronic trading systems would
have a database that would collect this
information associated with the user IDs. But
there as electronic trading has moved from
screens into automated training, that kind of
one-to-one association between a user ID and a
controller has broken down and, in fact, a lot of
times a user ID does not map to a controller. So,
you know, everybody says Tag 50 and that’s the
operator of the trading system, but that operator
is not necessarily the controller. So we in FCMs
try to keep track of who is behind the user ID and
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try to get as much information as we can about
them, for obvious reasons, but that doesn’t
necessarily mean that we have good information on
whether they’re a controller or not.
MR. FABIAN: I would reiterate that,
too. I mean, a lot of the user IDs represent the
person who is putting the order into the system,
but that doesn’t necessarily mean they are the
person that’s making the trading decision to
initiate that order. So we don’t definitely
and I’m sure everybody is aware of that don’t
want to confuse the so-called user ID authorized
trader with the account controller, even though in
some cases they may very well be the same.
MR. TUBRIDY: And then similarly with
the controller information so first name,
middle name, last name, date of birth. In the FCM
books and records systems, that information is not
standard at all if at all recorded. Certainly,
there’s an identifier for large trader reporting,
but that identifier is often times limited to just
that an identifier without the specific name
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and address information.
MR. PUJOL: If we wanted to collect this
information on a more systematic basis, and if it
were easier to do so by synchronizing our
definition with the large trader definition so
that then you’re expanding that existing process
what would be involved in expanding that
process?
MS. SUTPHEN: I think collecting that
data you’re basically lowering the threshold for
that type of reporting. That’s a manageable,
finite project, but one issue you’re going to find
is that that particular report doesn’t feed the
trade register. That information is not on the
trade register, so that would be only one piece of
it. You would collect this information, but then
how are you going to relate that to what you’re
actually seeing?
Is it the account number? Well, in some
cases it would be.
cases it would be.
Is it the user ID? In some
In some cases it would be
neither of those things. So, I think the
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reporting and collecting of that information
that’s feasible. Big, but feasible. But, then
again, what does that get you at that point? Is
that going to get you what you really where you
really want to be?
no.
MR. PUJOL:
NO. I would say the answer is
Just mechanically, what’s
involved in collecting the information? What are
you doing to find that out?
MR. TUBRIDY: Well, currently, I believe
this information is captured in the Form 40. So
that, you know, that is in the written format at
the moment. With a working group that’s been
formed by the FIA -- that several of us are part
of we thought that maybe expanding the use
electrifying the Form 40
capture this information.
might be a good way to
MS. SUTPHEN: But just to expand a
little bit on what you asked, I was speaking to
Jim earlier because we had a project at Newedge to
obtain just this sort of information for the Tag
50 values. With automated trading, our Tag 50s
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weren’t being properly populated in all cases. So
we had to go to the customer and find out how many
ATSs they had and what sort of trading system they
were using and try to come up with a way of
registering that. That was a very time consuming
process. I would say to obtain that information
from a customer would often take several back and
forths over a number of days to get exactly the
information we needed. And given the definition
of controller in the proposed rule, I believe that
that would be quite a time consuming process to
obtain that information right now.
MR. MORAN: If I could point out, too,
just in terms of CME rules, you know, we have a
rule relating to manager discretionary accounts.
So that situations where there is a formal power
of attorney in place and, you know, firms have
clearing firms have certain responsibilities
with respect to supervising that activity and
making sure, you know, everything is done
correctly. The rule does exempt proprietary
operations that have employee traders. So, even
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though those the proprietary operation may
empower their employees to enter orders and make
trading decisions, we don’t identify them as
formal control quote, unquote controllers.
And I think the same thing goes for large trader
reporting. Normally, those names do not get on
the CFTC Form 102. If there are multiple
controllers, you know, firms can just write
multiple and then just indicate who the, you know,
the principal of the firm is, or the officer in
charge of the trading activity.
MS. BERDANSKY: I believe Frank wanted
to make a comment.
MR. FRANIAK: Yeah, can you hear me?
Hello? Can you hear me? Hello?
SPEAKER: We can hear you.
MR. FRANIAK: Okay, great. I’m sorry,
I’m getting every time I talk I get feedback.
No, I was just going to say that in with regard
to data points 2, 3, 4, 6 and 7, the administrator
will have those in most cases, but as has been
pointed out by one of the individuals there, very
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often middle name will not be available.
MR. PUJOL: Frank, could you walk us
through a little bit because, honestly, I’m not
sure that all of us have the same level of
familiarity with the role that administrator plays
and sort of what function you could play in the
future in an OCR report?
MR. FRANIAK: Sure. The fund
administrator provides a variety of services to a
fund. The most pertinent, I think, for this
discussion is the administrator will do the
accounting for the fund and depending on the
level of service the administrator is providing
will also be processing investor data. So when an
investor goes to subscribe to the fund, those
documents come to the administrator. The
administrator does the KYC AML work and, you know,
a variety of other type things. So, again,
depending on what type of administrator the fund
has chosen, the administrator will have, A, the
investor data and, B, the ownership percentages.
One problem, however, that I need to point out is
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that the if you asked me the ownership
percentages for a particular fund say for
September I, I cannot tell you those ownership
percentages very often until September I0 or 15 or
20. In other words, there’s a lag between the,
you know, the end of the accounting period and the
time when the accounting work is done. So I’m not
sure what the timing of these reports needs to be,
but for collective investment vehicles, there can
be some, you know, issues with providing this data
on a timely basis, depending what -- you know
what the definition of timely is.
The other point I would just like to
make is that, you know, I apologize for not
preparing an opening statement, but one problem I
see with this whole structure as it has been put
forward is that it’ll be very onerous, I think,
for small commodity funds, small pools. The
reason for this is that very often they use
smaller admin firms. They can’t afford the
services of a firm like ours, which is sort of a
mid-tier firm, or definitely not a larger firm.
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And that’s because it’s a cost issue. They often
have, you know, a large number of investors and a
small amount of assets. So they end up going with
smaller administration firms that are not
generally very advanced technologically. And I
believe that these firms will have a very
difficult time responding to some of the requests
that you have here. As a result of that, I think
it will force a lot of these smaller funds to move
to larger firms that, frankly
just haven’t been able to afford.
MR. CRAPPLE: Thank you.
up to now they
I’d ask the
question why the account controller is focused on
individuals as opposed to a CTA or CPO firm and if
are we looking beyond the CTA and CPO firm to
see who the controllers are and how is that
defined?
SPEAKER :
MR. PUJOL:
Fair question.
Let me move on for a second,
but I do want to come back to that as in our
sort of once we finish the chart, we can go
back to some of those more complicated issues.
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The next data point I want to talk about
is number 15. This is something that again, Jim,
you mentioned there were some issues around. But
the concept we want to capture is, you know, what
orders are being generated by an ATS and what
orders aren’t? And so if anybody has any thoughts
on sort of the ability to capture that information
and the best way to transmit it, or if it’s just
something that’s not capturable in this context.
MR. COOPER:
thoughts that I just
I would like to echo Jim’s
I don’t understand why
you need that in this report, and it goes to an
overall sort of reaction that I have although
we didn’t make an opening statement but it
certainly is supportive of your efforts here as,
you know, being in charge of the market regulation
function. I think it’d be great to have enhanced
surveillance of aggregate activity, of commonly
controlled or owned accounts across multiple
clearing firms. But when I think about the
complications and complexities of actually
after we get this information identifying the
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matches, I start being worried about the
information that’s coming in, especially hearing
about dates of birth which would be great pieces
of information to identify matches. I think
with that you could just go with last name,
date of birth, and maybe zip code, and then you’d
have a decent match to start identifying the
matches. But I do I am concerned that as it’s
currently proposed, the proposal violates the KIS
rule which is, keep it simple. Because, you know,
what are we trying
MR. PUJOL:
MR. COOPER:
guess.
this is a surveillance
Can you leave out an "s"?
Yeah, that’s for savings, I
Because it’d be so expensive anyway to
build this, it won’t be in savings. But I do
wonder whether or not, you know, this is a
surveillance tool, right? It’s not do you
really need, you know, the Post Office where
you’ re going to serve the subpoena on the MOU
factor, that you identify with it? If you can go
to the clearing firm or the foreign broker, for
that matter, through the FSA to get the address to
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serve the subpoena, you don’t have to have it all
in this report.
MR. MORAN: It seems like what will
happen is most accounts will come in as they
can be either/or -- and, in this day and age, many
accounts will use, you know sometimes they’ll
trade manually or they’ll use some piece of
functionality that comes with most front-end
trading screens that might give them some kind of
automated ability. So you’ll be you’ll have an
indicator that says it could be either/or, and
it’s not really going to be a helpful piece of
data.
You know, like I said, I think what
we’re talking about here is reference information
of account owners and controllers. It is
information about who’s behind a certain account
number. And that ownership information is a
different set of data and it comes from a
different place than the transactional type of
data which relates to how somebody might be
entering a particular order, on a particular day.
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So that’s where, you know, we feel that it just is
not this is not the right place to add an
automated system identifier.
MS. SUTPHEN: And I don’t think that you
any of the readily available identifiers will
enable you to identify whether it’s an automated
system or not. It’s not we don’t use account
number or user ID to identify those systems right
now, so you would have to create some new brand
new field and try to implement that. I mean, what
we’ve all been trying to track that ourselves,
but you’re not going to have a nice, standardized,
easy identifier the way things are done currently.
MR. PUJOL: Does anyone want to add
anything there?
Nope?
Any CFTC folks on that one?
Okay.
We have a series of questions now that
have to do with sort of helping us integrate this
into a large trader reporting system. These are
data points 16, 17, and 18.
the special account number
In the spreadsheet,
if one has been
assigned an indication of whether this is a
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reportable account; the date the account became
reportable.
MR. COOPER: Again I’d ask why you need
all this in this report? I don’t know how the
plumbing works necessarily in all the FCMs, but if
there’s a special account number, fine, you can
report that. But then why do you need this
additional detail, because wouldn’t your other
databases have some of that information anyway?
MR. PUJOL: No, that’s a fair question.
But let’s just assume for a second that we did
want to receive that information.
to receive it?
MR. FABIAN:
Is it possible
Can I just ask a question?
What is the difference between the special account
number and the large trader reportable account? I
mean, how are you identifying the number that is
supplied on the 1027 Which category you report
are you categorizing that? And is that the
special account number or is that the large trader
reportable account?
MR. MARTINAITIS: The number on the Form
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102 would be the special account number. I think
the second, number 17, large trader reportable
account yes or no, basically I mean, there
could be the case I presuppose that for a trading
account number, a FCM could assign a special
account number to that trading account right from
the get-go before they even recognize that it’s a
reportable. I mean, we’ve seen that. We know
some companies do do that because we have the data
on it. So this next line, item 17, is basically
saying, okay, even though you provided a special
account number, you know, has that special account
reached the reportable status for large trader
reporting?
MR. COOPER: In which commodity over the
last 30 days? I mean, why do you want that
information on this report?
MR. MARTINAITIS: Well, part of it
obviously can be used as a double check for
completeness of large trader reporting.
MR. FABIAN: The question I would ask is
if some firms assign that account number, whether
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it’s a reportable account or not? And then it
comes through on this report, it may be misleading
as to whether that’s a reportable account or not,
when you compare it to, you know maybe there’s
a reportable account number assigned to it? It’s
not a reportable trader. And when you compare it
to your large trader information, you say, oh,
looks like maybe this one we’re not receiving
large trader information and, in fact, there’s no
reason to receive large trader information. So it
seems like it might be somewhat confusing as well.
MR. TUBRIDY: In terms of what’s
available, if when you submit large trader
information, there’s an account associated with
that large trader reporting.
perspective, that’s available.
So from an FC
If a special
account number is assigned, then that would be
available as well, but the date the account
becomes reportable is not available. And if you
think about what Karl just mentioned, is it could
be reportable today, not reportable tomorrow, go
for months and not be reportable, then pop back
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up.
systems are capturing.
MR. PUJOL :
You know, it’s just not a data point that the
Gary, do you have anything
further you wanted to say or ask about the date?
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MR. PUJOL: All right, on the account
MR. MARTINAITIS: No, actually, one
question I have goes all the back to item number 1
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MR. PUJOL: Oh, go for it.
MR. MARTINAITIS: and that’s the
trading account number. And as Sebastian has
said, that’s the trading account number that’s
actually coming to the CFTC on the Trade Capture
Report. And I think a few people have mentioned
today that those exact same account numbers are
known by the FCMs, and I was wondering if that’s
really true? Do the FCMs really know the exact
account numbers that are in the Trade Capture
Report that the CFT receives?
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MR. MORAN: If you’re referring to
execution accounts versus final clearing accounts
I mean, I think there could be two different
firms involved. So one firm can execute, but the
trade really is cleared and carried at a different
firm. And it is that second firm that actually is
carrying the customer account, and has the
relationship, and holds the customer account on
its books, that we’re proposing be identified in
this process. Certainly on the transactional
records there’ll still be a record of the
executing firm, but again, the executing firm may
not know who that ultimate customer is and they
may not have all the information behind that
account ownership. They may be dealing with, say,
an account controller which could be a CTA or
something of that nature. They’re executing the
trade, and then they give the trade up pursuant
to a give-up agreement to another firm and
that’s where it actually ends up in the account
where it’s going to be cleared. So what we’re
proposing is that would be the account identified
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as the account owner.
MR. TUBRIDY: Just to add to that, I’m
going to be given a few minutes at the end to walk
you through some examples of, I think, what you’re
after, Gary. And that is, does the trade register
the trade capture information tie directly
back to the trading account number at the FCM?
And there are times when it doesn’t tie directly
back, but it is traceable. And so I’ll walk you
through that with some slides that I prepared,
whenever you want.
MR. PUJOL: How long would your
presentation take with the slides that you
prepared?
MR. TUBRIDY: Probably no more than I0
minutes.
MR. PUJOL: It might be beneficial to go
through that now and then save some of our
questions until afterwards, after you’ re finished.
MR. TUBRIDY: Okay, I’ll be happy to do
that. Did everybody get this document? I think
we have a few extra copies up here if anybody
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MR. TUBRIDY:
I can have it for you on the
Just give me some cues for
Okay. Just a little
background on this and myself I should have given
in the beginning. I’m Ray Tubridy. I’m with
State Street Global Markets, but I’m here
representing this FIA Working Group that has been
formed to address the OCR requirements. So
everything I say is my opinion and not that of
State Street and the opinions of this committee
that we form.
These are preliminary. This is working
this group we formed is a Working Group, and
we’re working very hard to try to come up with
recommendations, or being able to just deliver
what the requirements are seeking. One thing I
will point out that it is a little bit difficult
within this group -- working towards an end goal
that we’re not really clear what system
capabilities exist on the CFTC side, so we are
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somewhat handcuffed in terms of some of the
solutions and the recommendations that we are
making. So please recognize that we’re kind of
working a little bit in the dark.
So the background on these slides
pertains to processes or process practices that
FCMs employed to get trades cleared. As I read
through the OCR proposal, the reliance on the
trade registered data was what jumped out at me,
as being a potential disconnect in being able to
tie back the trade registered data to the actual
large trader information. And the reason for that
is basically it falls into two categories. You
have what firms use or refer to as short codes
where trades flow through various systems, whether
they be front-end trading systems or through
executing brokers or wherever the trade source may
come into play. That then, ultimately, gets
converted at the end of the day by the broker’s
systems internally so that the account reference
in the registered data is a reference for that
client, specific for that client, but it’s not the
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1 ultimate residing or resting place of the trade on
2 the FCM’s books.
3 So that’s just a little bit of
4 background. I’ll walk through the slides, and it
5 should become clearer what I’m describing.
6 So, on slide number 2, it’s titled
7 "Give-Up Trade." Client A places an order with
8 executing broker. The executing broker places
9 that order to the Exchange with a reference
I0 number, 12345, which to the executing broker
II identifies Client A. For executing broker on the
12 register, the executing broker’s register, you
13 will see 12345. The executing broker back office
14 then will allocate that trade to the clearing
15 broker through the clearinghouse and they may
16 reference another -- in most cases reference
17 another account that the clearing broker will
18 recognize. So in this case, they allocate the
19 trade to Client A, short code ABCDE. Clearing
20 broker sees that trade in the clearinghouse
21 system,
22 whether
has rules built to recognize that
they be people, processes, or system
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processes.
They see that trade in ABCDE and they
accept that trade and then in their system, they
add to that ABCDE a prefix of 123. So the client,
the clearing broker’s client, gets a statement
that says 123ABCDE. And that’s what the clearing
broker and the client then use for settlement
purposes, highlighting the fact that the clearing
broker’s register will show ABCDE and that trade
will not tie directly back to the bookkeeping
entry in the FCM’s books. Any questions on that?
MR. GOLLEY: Yeah, I have a question.
In this diagram, what is the Trade Capture Report
account number?
MR. TUBRIDY:
MS. SUTPHEN:
I’m sorry?
He wants to know what ends
up on the Trade Capture Report.
MR. TUBRIDY: The Trade Capture Report,
which it’s the register, the trade register
for the clearing broker will be ABCDE.
MS. BERDANSKY: So that’s what would
show up on the Trade Capture Report we’re getting
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from the Exchanges?
MR. TUBRIDY: Yes.
MR. MORAN: Well, from the Exchange we
would show you both the executing level and the
clearing level. So you’d see both in different
lines of data.
MR. GOLLEY: So in this example we’d see
12345 in one field and ABCDEF or ABCDE in
another field?
MR. MORAN: On a different line of data
you would see those two different account numbers.
One would be the executing broker’s line. The
other would be the carrying broker’s transaction.
MR. GOLLEY:
MR. TUBRIDY:
again that this is
Thank you.
And let me just say it
these are practices that
firms have employed over the years. So it’s not,
you know, the ABCDE is an identifier for a
specific client which is following the rules.
MR. PUJOL: Let me interrupt you because
I want to make sure I haven’t misunderstood
because Jim, you’re saying that I mean, this
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slide here refers to trade registers shows ABCDE,
but Jim, you’re saying it shows both 12345 and
ABCDE? Is that right?
MR. MORAN: When the executing firm
submits the execution, there’ll be a line of data
that gets recorded in the trade capture. But then
there will be another line which is called a
give-up record, which basically is an
equal-and-opposite record that undoes that first
transaction and accomplishes the sending of that
transaction to the carrying broker. We call these
give-up transactions. And then the carrying
broker, when they accept the trade, populates a
line in their database saying that they have
bought or sold whatever the trade is. So it
essentially gets transferred from the executing
broker to the carrying broker. And that happens
during the trading day. And typically by 7 p.m.
All that is done, and the final clearing cycle is
run.
MR. TUBRIDY: Okay. The next slide
shows the second category I was speaking about
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that does not fully reveal the ultimate resting
place for the trade. It pertains to average price
trades. So again, the client places an order with
the executing broker and the executing broker
executes that order and, due to the market, is
executed over multiple prices and expected to do
so. And so the client has instructed the broker
that this will be averaged at some point later in
the day when the order is completed or orders are
completed. So the executing broker will record
that execution identifier for that client as
APSI2. The executing broker’s back office will
allocate that trade to the clearing broker as
123APS12. The clearing broker will claim it as
123APS12.
So on the executing broker’s register
that Jim just described, you’ll see on the
executing side and the clearing side the same
thing, 123APS12. But that’s the ultimate resting
place for that order, then it gets processed on
the clearing broker’s side, away from the Exchange
system within the vendor’s system, that has an
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application for average pricing trades internally.
And so they take that APS or that 123APS12
trade across all executed portions of the order,
average it, and provide the weighted average price
to the ultimate resting place in my example,
123ABCDE. So you have just --maybe in simple
terms, you have a bunch of trades that are coming
into you under this identifier, 123APS12, that get
combined and a weighted average price is
calculated. So you have one transaction for the
One weighted average price goes to
And
one account.
another account entirely, which is 123ABCDE.
this is very typical.
This happens every day firms are
doing this, average pricing trades. Typically,
what they do is they’ll take in all the trades in
this single account that they get from the
executing broker -- and they will average it and
allocate it across multiple accounts internally.
Those accounts internal are never recognized on
the trade register.
MR. GOLLEY: Ray, in this example,
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Client A receives one transaction, but in the
clearing broker there’s multiple transactions,
multiple trades, that are ultimately being
reported with different account numbers on them.
And we’d want to have the OCR data available for
all the individual accounts in addition to Client
A. Am I correct?
MR. TUBRIDY: Well, I believe that’s
what you want but the system doesn’t the
Exchange system doesn’t ever see those trades in
the detailed accounts.
trying to highlight.
MR. GOLLEY:
And that’s the point I’m
So there’s no record of the
individual accounts that made up the sum of
MR. TUBRIDY:
books.
MR. GOLLEY:
MR. TUBRIDY:
in the Trade Capture.
MR. COOPER:
There is on the FCM’s
But not at the
Not in the register, not
Ray, is this always done,
or usually done, in the context of a CTA or one
account controller? Is there doing a magic
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account program, for instance?
MR. TUBRIDY: It is for one account
controller, yes, but the controller can control
multiple accounts.
MR. FAY: Can I jump in right here now?
In what we see in the Trade Capture Report, which
is our trade register, the new format we get
every single trade execution and then the register
does an allocation offset/onset for the average
pricing.
MR. TUBRIDY: Okay. And real quick,
just to illustrate one more scenario, again, it’s
a process that firms have adopted to kind of
supplement, maybe, missing information, or do
things because the systems don’t fully support
what ultimately has to be done for the client. In
this case, Client A executes a trade with short
code ABCDE. The client will also -- so this is a
situation where the client is self executing and
placing orders with their executing and clearing
broker so the broker will execute a trade for
that same client, but using a different short
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code, UVXYZ.
At the end of the day, those trades will
be shown in the trade register or the Trade
Capture Report as ABCDE or UVXYZ, exactly how they
were executed. But the FCM will run a process at
the end of the day that takes both of those
accounts and flips them to the account 123ABCDE.
And the reason for this is typically there are
different commission structures depending on who’s
executing the trade. And so you use the multiple
accounts to identify which execution direction
this came the trade came from and then you
commission it appropriately.
MR. NOWLIN: It’s kind of hard to look
at this in the abstract, but I believe that in the
Trade Capture Report through the allocations that
we’re actually capturing all this information
as Jim Fay said earlier, you know -- with the
onsets and offsets, we’re able to track give-ups,
transfers, all sorts of in average pricing in
our allocation, which is in the allocation block
of the TCR. And I’d be happy to entertain more
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discussion about this. We can go into real world
examples. We can pull up the data and show you
some allocations, including give-ups, average
pricing, and transfers, but I believe we’re
capturing those account numbers.
MR. TUBRIDY: You’re capturing a lot of
it, but you’re not capturing all of it. And
that’s what I wanted to alert you to.
the proposal, this is
operations for many years
and I worked in
When I read
information you’re not capturing.
MR. GOLLEY: What is happening at the
FCM that’s not happening that’s not happening
at the DCM, in terms of this multiple account?
MR. TUBRIDY:
is the average pricing.
Well, the simplest example
It’s the firms are
average pricing the trade using their own systems
and not using the Exchange systems. So there is
no back-and-forth communication between that
process and the Exchange process, and so you don’t
get the ultimate detail.
MR. ANGUISH: The firms have the choice
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whether they use the clearing system to do the
average pricing or whether they do it at the firm.
MR. TUBRIDY: And so typically if the
trades that were done to be averaged are for that
FCM’s clients solely, they’ll use their internal
system. If it’s to be distributed through other
clearing brokers, they’ll use the Exchange system.
MS. BERDANSKY: There seems to be a
little bit of disconnect here, I think, between on
the CFTC side and what we have and, I think, what
Ray believes that we have. And I’m wondering I
think the Exchanges that we probably made the most
progress with on the Trade Capture Report are CME
and ICE. So I’m wondering if Mark and Jim maybe
want to add to this and clarify?
MR. MORAN: You know, I think what Ray
is pointing out here is there are a lot of
different variations. This average price example
is actually an average price and a give-up at the
same time. You could also have average pricing
where it’s just one firm involved. You can have
average pricing where, you know, the firm uses its
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own system and then brings the trades back. So
there is some complexity. I think in general,
though, the Exchange rules require that the owning
account does come into the Exchange. And, in
fact, there’s a process called Post Execution
Allocation Rule that was changed, you know, three,
four, or five years ago something like that
where the CFTC and the NFA have rules that allow
managed account groups to do an allocation after
the fact.
And those, you know that is one
circumstance where you might see an execution
number that is different from, you know, the end
allocations which come in through the give-up
process and sometimes through the average pricing
system as well, or sometimes both.
MR. TUBRIDY: Just to talk to that
point, in terms of the rule, the firms take the
approach that the trade has to have a client
identifier. And these short codes and these
average price accounts are client-specific
identifiers. They’re just not the ultimate
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account that the broker settles with the client.
MR. FABIAN: I think the point that Karl
made is worthwhile and from my experience and I
worked with Ray for a couple of years it’s a
CTA or a CPO where they’re making the trading
decision. They place an order. It gets multiple
fills. It comes back into an account that trader
owns. And then internally it gets broken out to
other accounts that are controlled by that trader,
but we don’t necessarily see those.
MR. GOLLEY: Ray, on the example that
you’ve given, who’s the counter party in that
transaction? Is it the clearinghouse themselves
or what do they identify as the account
counterpart? I mean, who’s on the other end of
that trade?
MR. TUBRIDY: If the trade is executed
by another broker and given to the clearing
broker, the counter party is the counter party
for the clearing broker is the executing
broker. But once the trade settles, at that point
the counter party is the CME or the Exchange.
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MR. ANGUISH: Once it clears?
MR. TUBRIDY: Once it clears, yes.
MR. MARTINAITIS: So in this particular
example here, going back to this again, with the
FCM if we gave FCM account number UVXYZ, would
they be able to identify the trader the owner
of that account?
account?
Would they recognize that
MR. TUBRIDY:
MR. PUJOL:
Yes.
Ray, did you want to walk us
through the data elements chart that you have
here?
MR. TUBRIDY: No, I think you guys
with this chart that we started with, we’re
capturing all of this information. I think it’s
redundant. Although, you know, what I will just
point out that what we did was we took the OCR
requirements and we identified the reporting
vehicles that we believe they already exist in or
might be expanded to support what might be
missing. So I don’t think unless you want me
to go through it it’s somewhat redundant.
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MR. PUJOL: Okay. All right. I think
just in the interest of time, I’m going to skip a
few of these items and I want to talk about,
obviously, something that’s on our minds and
I’m sure yours as well omnibus accounts.
just want to open it up to in general we
realized this would have a significant impact on
those accounts and just start off by just your
thoughts on
our thinking.
One of our concerns was, if we don’t
bring in omnibus accounts I mean, not only the
merits of having that information -- but if we
don’t bring them in, then you’re creating an
incentive to trade through omnibus accounts.
That’s an assumption that we’re making. If you
want to we’re interested now in your feedback
as to whether or not that is a valid concern or
And I
I’ll share with you a little bit of
not?
MS. SUTPHEN: I’ll make one comment.
When an FCM allows a client to have an omnibus
account, if it’s a you know, the FCM if it
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wants to have a relationship with someone that’s
profitable for them and know their customer, et
cetera, omnibus accounts are generally used in
cases where the FCM has an economic disincentive
to be the direct intermediary with the end user.
So it’s not I don’t think that any FCM would be
really comfortable with having any kind of large
customer go through some other broker’s omnibus
account. I think they would prefer to have the
relationship themselves, in general. It’s not,
you know I think I don’t think omnibus
accounts are generally used to hide trading
activity. It’s really just a matter of
aggregating a lot of trading activity from other
maybe other countries or smaller entities where
it makes sense to aggregate them to an omnibus
account level.
MS. BERDANSKY: Could you envision a
situation, though, if this proposal goes through
to a final rule where people really might not want
it disclosed who owns that account or it might
be an incentive where maybe in the past it hasn’t
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but to actually just hide it through the
omnibus account?
MS. SUTPHEN: You know, omnibus accounts
have been around for so many years and they
certainly haven’t been used that way. I don’t
think the FCM would be too comfortable with that,
honestly. I mean, it’s their balance sheet at the
end of the day. I don’t think they want some
unknown entity putting their balance sheet at
risk.
MR. MORAN: I would say, first of all,
you know, that there’s additional cost if someone
was going through multiple different firms rather
than directly through one firm. So that’s kind of
a disincentive. You know, the other thing that
Exchange rules allow for I mean, if we have a
need to get beyond, you know, what’s in the
omnibus account, I think a large trader the
rules relating to large trader reporting
accommodate for this, and certainly on the
transaction side, as well. If we saw an omnibus
account engaging in certain activity, we right
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away would be asking to identify, you know, what’s
behind that omnibus account? And we always
within the DCM rules we have that power to do so
and clearing firms would be obligated to assist
us in that process. And in the event that they
didn’t cooperate, you know, we could, you know,
disconnect them or, you know, not allow them to
trade on the markets. So, you know, I think there
are a lot of disincentives for that to happen
already. And, you know, certainly it’s something
that we’d have to watch for that somebody could
do an abuse through an omnibus account; we are
always going to vigilant on that part.
But the majority of business coming
through, omnibus tends to be more small, retail
accounts. And, you know, there’s a whole lot of
structure within the industry for this to exist.
And, you know, provides incentives for smaller
firms to go out and raise business foreign
firms to come into the markets and, you know, to
basically shut off that or tell the foreign
firm that they had to turn over all of their
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accounts to a U.S. clearing firm would be a
huge disincentive for business to come to the
markets, which generally would not be a good
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MR. FOLEY: I would say I think, too,
you have a concern especially in the foreign
markets that the accounts may be coming in through
a foreign broker which in turn has omnibus
accounts on its books. That foreign broker isn’t
going to always know who the underlying customers
are. The foreign broker may have -- there may be
laws, privacy laws, in the countries there that
would prohibit the foreign broker from sharing
that information on a routine basis, as opposed to
through the MOUs that CFTC and the SEC have
entered into. And so you might end up actually
closing out a fair amount of foreign business from
the U.S. I’m sorry, into the U.S. and you
might also have a case where if the customer is
disclosed to the U.S. FCM, that that U.S. FCM
would then be required to be registered in that
foreign country, and that would then put that FCM
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subject to conflicting regulation and just would
not be workable, I think.
MR. FABIAN: ICE has similar rules that
Jim spoke of requiring clearing members to either
get the information or assist their clients in
getting the omnibus clients in getting the
information to the Exchange. We quite often have
the need to request information about an omnibus
account and rarely do we run into situations where
there are any issues with respect to providing
that information when requested.
MR. PUJOL: The privacy concerns that
were mentioned so you don’t face them?
MR. FABIAN: Sometimes. Depends on
which country you’re requesting the information.
The information that’s coming out -- sometimes
they, you know, they have to consider their local
jurisdiction laws and regulations, but, you know,
we have ongoing conversations with them and
eventually we usually end up getting the data.
MR. OTT: And Sebastian, we’ve also
noticed during our electronic auditor reviews in
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which we request the auto trail for a particular
account the clearing firm will say, well, that’s
actually an omnibus account on our books and
can’t say it has or has not experienced any
problems at all with actually having the
nonmember omnibus account cooperating with us to
get the information we need for the electronic
audit trail.
MR. PUJOL: Jim, you mentioned a concern
I want to make sure that I understand in addition
to the privacy issues, to the extent they arise.
You mentioned people may not want to reveal the
customer to the FCM, right? The foreign broker,
for example? Can you is that a competitive
concern, that they just don’t want to share the
customer list? Or what’s the
MR. MORAN: Yeah, I think I was
referring to the competitive thing where if a, you
know, foreign FCM has a lot of customers and they
have to identify all those to the U.S. broker, you
know, what is their role? I mean, that’s, you
know they may just decide rather than bring
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that, you know promote certain markets to their
customers they’ll just promote other markets
where they don’t have to go through that kind of
procedure.
MR. PUJOL: Does anybody want to talk
any further about omnibus? No?
Once last thing I wanted to go back to
George, you had raised a question a while ago.
I think it was you, maybe it was Kevin, with
respect to the treatment of CPOs and CTAs and who
the controller is there? Is that right? Could
you just sort of bring that to our attention again
if it’s
MR. CRAPPLE: In our business we have
total discretion over all the accounts we manage
and decide where the proposal of we don’t have
to disclose information about the ultimate account
owners unless they’re I0 percent owners of a pool,
which is a very unusual situation in a big, public
pool that would really never be the case.
So I’m looking at the form and it
instead of and, of course, we’re a large trader
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and we have an NFA number and all, but the account
controller information all seems to be ended in
individuals. I guess I’d ask why and how many
individuals in a CPO or CTA are providing this
data?
MR. PUJOL: So basically your point is
how
MR. CRAPPLE:
have a substantial
the company.
MR. PUJOL:
MR. COOPER:
Well, we have about we
quite a few shareholders of
Okay. All right.
Well, also a sophisticated
trading advisor might be trading an account or a
fund around, you know, around the clock and have
three different shifts a day of traders minding
the account. I just don’t know why you’d need
that information in this report? You have the CTA
entity. I don’t think this report can ever be
if you try to make this report be the alpha to
omega for Division of Enforcement to just bring,
you know, bring an enforcement action just
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you have just a large number of controllers and
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based on the data that comes out of this report
I think you’re never going to get this off the
ground.
So, again, I would say keep it simple
and try to give yourself a functioning tool. You
know, maybe you can build on it later, but just to
try to get something off the ground that is a
useful tool both for you and for the market
regulation functions of the Exchanges, I think
would be a better way to go.
MR. PUJOL: We’re going to take a break
in a few minutes and move on, and then after that
we’ll move on to our second sort of series of
topics. But before we do that, I just wanted to
give anyone a chance if there’s anything that’s
sort of been left unsaid in terms of data points
that should or should not be reported, or that
would be very problematic to report, or that you
think could be we could get to the same place,
in terms of unique identification in a more
efficient manner than what we’ve discussed here?
And one question that we had sort of
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thought of at one point is, for example, instead
of sending us the names and addresses and all
these things to try to get to a unique identifier,
would there be an appetite for an industry-
created unique identifier, for example? Just want
to open it up to just, you know, whatever you want
us to take away as we go back and think about what
our next step should be.
MS. SUTPHEN: In the Working Group I
think we’ve all agreed that it would be nice to
have some kind of industry standardized unique
identifier. I think our caveat is that this would
be something new that would require major
re-architecture of lots of different systems, and
it couldn’t be implemented overnight. So, you
know, I don’t have a problem with the idea of
unique identifier. I think it’s a good idea. I
just think it’s something that we need to phase in
on a practical timeline.
MS. BERDANSKY: Do you think what you
said that it would take some time to phase in, but
it’s something that people may have an appetite
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for, is there a preference for that? I mean, I
think we’ve acknowledged in our proposal that even
as proposed, we think this would take a while to
implement. Do you think
MS. SUTPHEN: More than 18 months. And
I think, you know, there’s been some dancing
around here, but I think the definition of
controller really does need to be tightened up a
bit before we come up with this unique identifier
because I think right now trying to impose it on
our existing definitions is quite difficult.
MR. TUBRIDY:
I wanted to point out.
Just one other thing that
Within the group that
we’re working on, we’ve, you know -- and I’ve read
and it was very clear in the proposal when it
comes to talking about costs associated with
supporting this initiative that you want very
specific costs, and we’re trying to get to that
but we’re a ways away from that. But in our first
polling of 13 firms doing an average
implementation of costs and ongoing costs, it
averaged to about $18 million a firm which was
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MR. PUJOL: Are those costs I mean,
if we modify the proposal in some, you know in
certain ways where’s the biggest savings? You
know, if you were to take a look at those $18
million, is there some specific thing we’re
requesting or two or three that are the bulk of
that or are these sort of IT costs that would have
to be incurred no matter what to get even a little
bit of this information?
MS. SUTPHEN: They’re not really IT
costs, per se. They’re actually the data input
and the maintenance of the static data is the bulk
of the costs. So insofar as you could simplify
the data requirement and reduce it, obviously
maintaining it would be much simpler and much
cheaper.
MR. PUJOL: And when you say reduce, you
mean a smaller number of accounts?
MS. SUTPHEN: Smaller number of accounts
and smaller number of controllers for start, and
then possibly data that we already have as opposed
to data that we haven’t been traditionally
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collecting in the past.
MR. PUJOL: You talked about that there
might be an appetite for an industry-created
identifier. Have your discussions reached a point
where you think about who’s creating it, how it’s
distributed?
MS. SUTPHEN: It’s funny because there’s
been some back and forth in the Working Group.
The Working Groups consist of people like me who
generally work on the front- office side and have
to assign user IDs and trading platforms, and
people like Ray who work on the back-office side
and assign account numbers and do allocations, and
we both are passing it off to each other. So I
would say not unlike what my colleagues on the
Exchanges have done today so I would say we’re
not quite ready to propose that yet.
MS. BERDANSKY: It doesn’t sound much
different than CFTC and what division is going to
do what
MR. PUJOL: Are DCMs part of those
conversations?
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MS. SUTPHEN: Absolutely. The Working
Group has been the FIA Working Group has
consisted of people from the Exchanges, people
from the FCMs, and people from other interested
parties, including vendors.
MR. MORAN: On the topic of the unique
identifier, I mean I think, you know, our industry
has had the account number for many, many years.
We have large trader reporting for many, many
years. We have a lot of experience. We have a
lot of systems and expertise built up both at
CFTC, at the Exchanges, at the firms and we
believe that we have the data points that we need
to do this job well and that it really would not
be worthwhile to have to go and create a whole new
structure, a whole new identifier, and then try to
get every account registered with some unique
identifier. That would be just such a gargantuan
task, that it would be, you know, very expensive
and very time consuming. Like I say, I think we
can already do the job with the data that we have
currently.
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MR. FABIAN: Just for point of clarity
on the FIA Working Group, I know there are some
Exchanges involved. ICE Futures has not been
involved
5 MS. SUTPHEN: That’s not true on the
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Working Group?
MR. FABIAN: Yes.
8 MS. SUTPHEN: ICE Futures has been
9 involved.
I0 MR. FABIAN: Has ICE Clear U.S. been
II involved in it?
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MR. FABIAN: Okay. ICE -- it just came
to my attention yesterday that there was a Working
Group. Our names have been added, but ICE Clear
was added, ICE Futures was not.
clarity, that’s all.
MR. PUJOL:
Just one point of
One thing that hopefully
will be addressed in the comments, but I just
haven’t given any thoughts right now, what your
ideas are around a middle ground between every
account being reported and just the large traders
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because I think that or at least want to make
sure that you guys are sort of in your comments
that that get some thought because I think
inceptionally we want to do more than just large
traders, but, you know, we are open to some
open to tests around how we define that more.
MS. SUTPHEN: I mean, as Jim suggested,
volume traded may be an interesting criteria to
add because you might get some of the proprietary
trading groups that don’t go home with large
positions at night, but do impact the markets.
MR. PUJOL:
else? All right then.
break and then we’ll reconvene?
(Recess)
Does anyone have anything
Let’s take say a 15-minute
Thank you.
MR. PUJOL: All right, we’re going to
reconvene and get started again.
MR. GOLLEY: Good afternoon again, and
thanks again for coming to participate in a panel
and, more appropriately, for coming back from
break. My name is Jerry Golley and I’m the deputy
director for systems and services at CFTC, so my
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role is technical. And what I’m really interested
in is hearing about the processes that take place
already to communicate from the data sources all
the way through to the DCM and ultimately to CFTC.
At CFTC we’re intimately aware and
knowledgeable about the process, the communication
that happens between the DCM and CFTC, but we want
to explore more in depth about what happens before
we ever get the data.
So the purpose of this topic area is to
get a clear understanding of the OCR rule and how
it might be implemented. There are three areas at
a high level we want to talk about. One is how
will the DCMs provide the data to CFTC and we
kind of have a good understanding of that and I’m
going to kind of outline how we picture that
happening. I want to understand what coordination
would have to happen between the DCMs, the FCMs
and, ultimately, the data sources. And then,
also, the third topic would be privacy and
technical security and how that might be
implemented and what role CFTC might play to
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ensure that privacy and that technical security.
So I’d like to begin by summarizing my
current view of how it might work from the
DCM/CFTC view. The end result would be that the
DCM would provide CFTC with the data file on a
weekly basis via a secure FTP. The precise format
of that data file would be defined by CFTC shortly
after the rule was adopted. Current thinking is
that that format would be a FIXML data format.
The first OCR data file received from
each reporting entity would constitute a master
file containing all the required data for the
trading account numbers present in the Trade
Capture Report during the past 30 days. Each
subsequent OCR would identify the weekly
additions, deletions, and amendments to the master
file. Given that all the desired data element may
not currently reside with the FCM, we want to get
a better understanding of how the DCM might
obtain, maintain, and secure that OCR data?
So to begin, what I’d like to do is talk
about and have you guys tell us what is the
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data flow from the data source to the FCM to the
DCM, currently, just from the standpoint of where
Client A starts? They are a brand new client.
They registered with FCM. How do they do that?
How do they then go to the next level to you
know, all the way through to the process so that
the end result Client A ends up with the
account number that’s at the Trade Capture Report?
MR. PUJOL: Jerry, if I could add one
thing. It might be helpful to maximize our
understanding if you assume a situation where your
client is the greatest possible number of steps
removed from the DCM.
MR. TUBRIDY: Should I start from an FCM
perspective? I’m boarding the client and then
hand it off to the Exchanges? So I’m boarding a
client you go through your typical KYC
information, agree on your legal documentation,
get all of the checks through from the KYC credit,
what have you, and once all the requirements that
the firm has outlined have been satisfied, you
open the account. And you open the account within
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the system, recording the data that you’ve
collected into the back office system. And then
at that point, I think, is where FCMs do things
differently.
There’s, you know, some very basic
things that are governed by rules and laws, but
there are some free- form type information that
can be added or can be omitted and you’re not
necessarily putting all the information in the
same order. But, ultimately, what you put into
the system will drive all of the proper
communication to the client, to the Exchange, and
to the CFTC, for large trader reporting purposes.
But I just wanted to emphasize that, you know,
within the system, you know, there’s lines of data
that are available to populate and there’s some
different approaches to how that data is
populated.
MR. GOLLEY: Is there a standardized
data collection effort for the FCMs? I mean,
across all FCMs, are they collecting the same
amount of data, the same information?
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MS. SUTPHEN: No, I would say not.
There’s some general things you have to collect
obviously, you know, net worth and name and
address and tax IDs and things like that that I’m
sure everybody collects, but different firms have
different standards for what they want to know
about their customer. You know, trading styles,
things like that might vary quite a bit by firm.
MR. TUBRIDY: But one thing and this
is one of the debates we had in our Working Group
was that, you know, in the name and address
portion of the system, you’ll have six lines that
you can populate the data in. And some firms may
choose to use the first line for maybe just to
reference the controller not required, but
that’s how they kind of keep track of the
controller and then put the name and address
information in subsequent lines. But one thing
I’ll point out is that the system itself knows
you define within the system the mailing
address. And so the system then points to the
right lines within this kind of free-form area
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that can give what the true mailing address is.
So that is available.
MS. SUTPHEN: One other point. The Tag
50, the operator IDs, that’s not in the back
office system. There’s some exceptions that that
data is held in kind of a customer relationship
management system or in a support system. It’s
not, it’s rarely held in the back office.
MR. GOLLEY: Okay. And then in your
experience, is the communication between the
client and the FCM electronic or paper?
MR. TUBRIDY: Well, it’s a combination.
You know, you do a lot through e-mail with filling
out documents and, you know, sometimes the
documents are filled out, you know, using a
program or they’re scanned PDFs that are just
e-mailed.
MR. GOLLEY: Okay. And then the next
step is the communication between the FCM and DCM.
What’s the mechanism, if you will?
MR. TUBRIDY: At that point there is no
specific communication about clients until the
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client hits a reportable level. And once the
client hits a reportable level the 102 is
requested and that information is exchanged using
the 102 form.
MS. SUTPHEN: Yeah. We’re the ones who
turn on the switch on whether they can start
trading or not and processing the trades. At
least in the U.S. the Exchange doesn’t really give
a go-live for a specific account. They assume
we’re doing that.
MR. GOLLEY: Going back to the first
section, the first topic area, I had a question
about the special account number. And we
identified that the FCMs knew that special account
number, do the DCMS also have privy to that number
already?
MR. MORAN: Yeah, I mean, just to go
back to, you know, the issue of the mechanism of
relaying the data. First of all, there currently
is no mechanism where this stuff routinely comes
in an automated way. The point I was making
earlier, if an account becomes reportable for 102,
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we send out a request for 102 which basically is a
hard copy form. It may come to us via e-mail but
usually firms are creating those by having a
person actually type or write the information in.
And then they e-mail it to us and then we have to
have a keypuncher type that into a database.
So our proposal really is, kind of, that
if what we want to build is an automated way to
report account ownership and control information,
you know, it really makes sense to have that 102
process and the OCR process as one. And
basically, you know, because once you get the OCR
reports in you will have, you know, most of the
information you need that’s on the 102 form.
Maybe not everything. And maybe some of the stuff
that’s requested on the 102 is a little bit
obsolete and that could be revised as well, but,
you know, the bulk of it, and the key stuff the
benefit I think for the industry would be, you
know, firms could automate their processes more
and so, instead of having people that are actually
receiving these requests for 102 and writing out
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forms, you know, they can have an automated
process that does that on their behalf. And from,
you know, being a receiver of the data at the DCM,
or the CFTC, you would also have the benefit of
receiving the data electronically and not having
to have somebody keypunch it.
Every time, you know, a person touches
it and has to, you know, keypunch or whatever, or
write out things, you know, there’s an additional
error point that could be introduced. So by
having the stuff come off automatically, you’re
eliminating those points of mistakes and errors.
So, again, we think we would definitely have to
build something like this. The mechanism doesn’t
exist, but, you know, the idea would be that it
would cover both of these reporting bases.
MR. GOLLEY: The problem with the 102 as
I understand it is that it’s only required for
large traders. And if you have significant
activity happening at the transaction level by a
specific trader, we wouldn’t be able to capture
who they are. And if they were, you know,
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performing those trades on a set of accounts to
disperse it so it was not recognizable as somebody
doing a whole bunch of stuff that would be hidden.
MR. MORAN: Well, the idea would be if
we had if we set the threshold at a volume
level, as soon as an account reaches a certain
volume, and I presume that would be, you know, at
or below the reportable position level, then you
would have an automatic identification of that
account come in. So instead of, you know, when
looking at large trader reports you might see a
new account shows up one day and it’s unknown to
your system and so you have to send out a request
saying please identify this account, it may take
the firm, you know, a week or two to respond to
that request. So, you know, for two weeks you
don’t really know who that account is. Obviously,
you can make a phone call and get it immediately,
but if it came in automatically say, every
Friday, you know it would automatically be
populated and most likely would be populated long
before the account becomes reportable.
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And your proposal includes both
identifying the reportable account number and the
trading accounts. This is basically a key to
what’s the relationship between the reportable and
the trading account side. So that information
would come in and you’d have both sets of data
that could be easily populated in a database
automatically.
MR. GOLLEY: I asked the question a
moment ago, if the DCM knew the special account
number for every account? And the answer as true.
Yes, if it was a large trader they would know the
special account number on the large trader. Is
that correct?
MR. MORAN:
correct.
MR. GOLLEY: But that information is not
Is that correct?
MR. MORAN:
MR. COOPER:
That is correct.
I’d put one caveat on there
if they’re reportable on your exchange. So,
someone could be reportable in ICE, but not
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pushed through to the TCR.
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reportable on a product on CME. Then, obviously,
the 102 form might not go to CME or to MIC Liffe
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MR. GOLLEY: Okay. Thank you. Okay, so
if this rule were imposed, what collaborations
between reporting entities and the root data
sources do you envision would be necessary to
implement the OCR?
MS. SUTPHEN: Who wants to go first?
MR. MORAN: I think we would have to
have a collaboration with the I mean, certainly
with the firms, the DCMs, and the CFTC, as well.
MR. GOLLEY: So what would do you see
CFTC kind of creating a forum to facilitate that,
or is it directed -- is it managed from the DCM,
and CFTC is invited?
MR. MORAN: I don’t know if that makes a
whole lot of difference, but I know that if part
of the arrangement is that data has to be provided
to the CFTC, certainly your technology people
would want to be present and understand, you know,
what how the data is going to be set up, what
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the protocol is for transmission?
You know, you mentioned FIXML.
Currently there is no FIXML report for this; we
would have to create one. So we would have to
define the data elements of the FIXML. We would
have to go to the FIXML Standard Committee, get
that approved, and then, you know, publish a
document. And this would be a collaborative
effort that would involve, you know, all of the
exchanges, all of the firms, and the CFTC as well.
MR. COOPER: Yeah, I’d agree with Jim.
There would need to be a standard -- a set of
standards that would be industry-wide so the FCMS
even with just one standard, one format, one
set of protocols around timing and whatnot is
burdensome enough, but the exchanges couldn’t have
separate formats, et cetera.
MS. SUTPHEN: And you would have to get
our large vendors involved in this as well because
it would involve some pretty substantial changes
to their systems.
MS. BERDANSKY: When you say your large
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vendors, could you be a little more specific on
what type of vendors?
MS. SUTPHEN:
back office vendors.
SunGard and, you know, the
And also the trading
platform vendors because, remember, this data has
to get past the back office doesn’t come in
until the trade has already gone to the managing
engine, so you’ re going to have to make sure that
the trade the trading information gets
conveyed on the trading API, as well.
MR. ANGUISH: That’s if you want to see
it on the trade register. If you want to look it
up later you wouldn’t have to have it on the trade
(inaudible) .
MR. GOLLEY: What are the primary issues
that you believe that will require agreement
among reporting entities and the reporting and
the root data sources to implement the OCR? In
other words, what are the issues that are going to
be raised at that point?
MR. TUBRIDY: Jerry, one of the things
that in the group we’ve debated maybe argued
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is the controller information. So today the CFTC
collects that from the client themselves the
controller themselves and that, you know, that
is a piece of the information that, you know,
we’re kind of stuck on what to do. You know, we
thinking amongst ourselves think, you know,
electrifying the 102, doing the same with the Form
440, would obviously make that information more
useable across datasets.
on that?
MR. GOLLEY:
just take the data in.
What are your thoughts
I’m a technology guy so I
(Laughter.)
MS. BERDANSKY: Remember what we were
talking about earlier, one division kind of
throwing it over?
(Laughter.)
MR. GOLLEY: Sebastian, I’d be
interested to hear what you had to say.
MR. PUJOL:
the mic.
MR. TUBRIDY:
I’ve already had my turn at
I was going to say I think
the important thing to keep in mind, too, is that
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in terms of the more you drill down from who the
customer is to whom the controllers within the
customers are the FCMs rely for that
information on the customer. They have no way to
verify most of that information that comes in, so
the customer says, there are two controllers and,
point of fact, there are I0. You know, the FCMs
can’t be responsible for knowing that information.
That information, as Leslie said, we really should
go from the customer straight to the CFTC.
MS. SUTPHEN: I mean, we have in our
client document that they’re responsible for
letting us know who the controllers are and for
verifying that traders are authorized. But, you
know, practically speaking, they could have 15
different people using the same user ID or same
API and we wouldn’t necessarily know that that was
the case technologically. I mean, we have legal
documentation in place and it says we have the
right to audit it, but we can’t we don’t have a
technological way of auditing that.
MR. FABIAN: From our point of view, I
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mean, this may be the unpopular view, but we have
stated that we thought that this reporting process
should be going directly to the Commission. And
from my brief knowledge of it, I mean, the Form
440, as I understand it, is filed directly with
the Commission. It doesn’t really go through the
FCM. So the controlling information is being
provided to the Commission. And even though the
102s also go to each of the reporting entities,
you know, it seems like as has been raised
before there’s a divergence of an FCM having to
report the five or six different reporting
entities, when it would seem more efficient to
report to a single location, and then a format for
doing that is standardized with one entity.
Obviously, each of the reporting firms
have to, you know -- and I’m speaking more with a
bias from the reporting entity as opposed to the
firms that have to report this because they’re
still going to have to report it, one way or the
other, but at least they’re reporting to one
entity, as opposed to several entities.
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And as I understand it, the Commission
would be expecting each reporting entity to
develop rules that require the information to be
reported to the reporting entity which, again,
leads to a situation where you have multiple SROs
trying to enforce the reporting of this data. So,
I mean, again, like I said, I think it may be the
unpopular recommendation, but, you know ICE has
said that we think it’s appropriate for this to be
reported to the Commission directly.
You’ve got the 102s, you get the Form
440s, and you get the TCR information from the
exchanges. And you can compile it and then, you
know, we can get a feed of that from one location,
one source, one dataflow.
MR. GOLLEY:
whom?
MR. FABIAN:
the root data sources.
MR. GOLLEY:
MR. FABIAN:
MR. ROGERS:
Directly to the CFTC from
From the, excuse me, from
From the trader?
The traders and the firms.
I have a question. From
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that viewpoint, where would ICE expect to get the
data for its own purposes?
MR. FABIAN: Either the CFTC can send it
to us as a reporting entity or exchange not a
reporting entity in this case; it was an exchange.
We could download it, but we’d only need for those
accounts that trade on our exchange.
MR. PUJOL: I want to follow up on that,
Mark. If how could we ensure, if we were to
follow that model, that the trading account
numbers coming through from the FCMs match the
trading account numbers that are on the TCRs?
MR. FABIAN: Well, you would be
requesting that information for them as part of
the data and we’d be providing the trading account
numbers, the clearing account numbers, and the
trading to the execution account numbers to you,
through the TCR.
MR. PUJOL: I think, and there’s I
know there’s other people here around the table
from the CFTC that know better than I do, but I
think that we have had a problem in the past and
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someone asked the question earlier, does would
the FCM know exactly the trading account number
that we get from the DCM? Because, at least, I
know in past times when we’ve done comparisons,
we’ve found that they’re not actually identical.
That oftentimes there is some additional content
in the exchange-provided number, so that if you
have computer systems here trying to align those
things, it doesn’t work.
MR. OTT: But we would have the exact
same problem, wouldn’t we?
MS. BERDANSKY: But wouldn’t the
exchanges then have the information to clean it up
if we’re giving it to the Commission?
MR. OTT: I guess, Rachel, my
understanding is that in that trade cash report,
basically everything we have is being flowed into
the Commission. So I guess my question is, what
information does the Exchange have that we’re not
giving to you? Because it was my impression that
everything we had was being given to you.
MS. BERDANSKY: We get, you know we
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do get the trade data that’s coming through on the
trade capture report, but if I understand this
correctly from talking with other people, the
Commission that in the past, it’s just what
Sebastian has said. The number that’s come
through on the trade capture report isn’t
essentially the same as the one that might be
coming through the FCM. So, you all would
probably be the best ones who actually would have
the data to match it up.
MR. PUJOL: Joe, it’s not that you’re
not providing the information. That number is
there, but it might there might be some
additional characters that have been added. Then
our system doesn’t recognize it as actually the
same account number. And the presumption that
we’re making is that if the character is being
added by the Exchange’s system, then you would
know sort of by what logic characters are added
and you’d be able to remove them for that
comparison.
MR. TUBRIDY: I think you’re back on the
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situation I was describing earlier, which is the
short code and the average price trades where that
will cause the trade register information or
account to be different from the larger trader
that we’re submitting.
MR. KIRILENKO: We’ve run this, a little
bit of test on this at one point in time where we
did receive we asked the FCM to send us their
the trading account numbers, I believe, would
be in the trade register account. And then we, of
course, matched it up against the trade register
and, you know, they didn’t match very much. And
in fact, we had to send the account numbers we got
in the trade register back to the FCM. And when
they looked at them they go, well, these aren’t
really our account numbers. They look like trader
IDs. I mean, I recognize some of the initials.
They’re initials of some of our traders. They’re
not really account numbers. So that’s where some
of the problem is that we saw. So
MS. BERDANSKY: So I guess the question
on our part is, you know, if this was to work,
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that the data came directly to the Commission and,
you know, didn’t go to the Exchange, how are we
going to clean it up? Someone has to be
responsible.
MR. FABIAN: I guess the same way that
we would be cleaning it up because
MS. BERDANSKY: I think you all have
more information than we have to do it because
you’re the ones who were originally passing this
number along and you know how it gets changed in
your system.
MR. COOPER: I think the FCM report,
whether it’s to the Exchange or to the CFTC would
have to be reporting what both the short code, you
know, and with the full account number, is because
either we’re going to have to ask that information
or you’re going to have to ask that information.
MR. FABIAN: And I’m not sure what is
meant by information added by the Exchange? I
mean, if we’re being reported a short code as
given a short code as the clearing code, that’s
what we would pass along. So, if later the FCM,
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let’s say, came to us and gave us account
information and we see a full length account
number where on our trade register we had a
truncated account code we’d have the same
question I think. So it’s just a matter of who
would go about saying, okay, there’s a discrepancy
here? Please explain why the account number that
you have on your books is not what you’re passing
through on as the clearing account number on the
trade register?
MR. OTT: And that’s right. I mean, Dan
just told me that we’re not changing anything at
all on the account numbers that the firm is
passing through to us.
MS. SCHRAMM: Well, if I haven’t
convinced you already that the IBs really
shouldn’t be included in this at all, I suspect
that getting a weekly report from 1,300 registered
entities saying nothing has changed every week
would convince you that they shouldn’t be in this
category.
MR. TUBRIDY: We talked about how we
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might address this difference between the short
code that’s in the register versus the ultimate
clearing account, client account. One idea was to
provide those short codes and there are some
hurdles with doing that just based on the systems
that we have available but that was one idea.
And that would get included in the I don’t
know. One idea was to include in the related
accounts, which kind of ties back all of the
accounts to the single controller based on that
special ID. So that was one idea.
Another idea that was floated was the
firms provide the register date to the CFTC, or to
the DCM, or somebody. So we have all of that. We
have it in the right format at the end of the day
and so it is available.
MR. MORAN: We think it would be a lot
of work to do this reconciliation process. It’s
not something that, I see me, as a DCM, would look
forward to doing. It would be very expensive, but
it is one of the reasons if you do all accounts
and pick up all the very small retail accounts
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that, you know, the cost becomes exponentially
greater because you’ll have to do this
reconciliation, you know, with a greater number of
accounts.
MS. BERDANSKY: Jim, could you even
begin to estimate how much less your cost would be
if we had a volume threshold, say of, you know,
I00 trades a day or something like that? Or I00
trades in a week?
MR. MORAN: Yeah, I don’t have
MS. BERDANSKY:
affect the cost?
MR. MORAN:
How that starts to
I think, for our response by
October 7th, we’ll work on that, but I don’t have
that information correct right now but we do
know it would be very expensive.
MR. TUBRIDY: Just one point. The
survey that we did in this working group to
analyze the costs of the 13 firms that submitted
information, those 13 firms represented 534,000
accounts. So, just to kind of give you some idea
of the magnitude of accounts.
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MR. GOLLEY: On a related question tying
directly to what you just said, what percentage of
those accounts would be above a specific threshold
of I00 trades a day or whatever?
MS. SUTPHEN: We did some work at
NewEdge based on not on volume but on revenue.
And that’s the usual 80/20 rule but, I mean, of
the you know, we had 50,000 accounts and less
than I0 percent of them accounted for 90 percent
of the activity. So that’s probably a pretty good
rule of thumb.
MR. GOLLEY: When you say activity, do
you mean volume or transactions?
MS. SUTPHEN: We make money on volume,
not positions. Well, on both if there’s interest
rates, but right now it’s on volume.
MR. GOLLEY: Actually, Leslie, if I
could ask sort of a follow up to something you had
said previously, you mentioned you were collecting
information with respect to a controller, but I
guess the concern you’ve expressed is that that
information is just you’re asking for it. You
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have no way of verifying. And I mean, is that
basically the concern around controller that
it’s non- verifiable and, therefore, not worth the
trouble?
MS. SUTPHEN: Well, I mean, the client’s
obligated to tell us who their controllers are. I
mean, it’s in our account documentation, but I’m
just saying we don’t really have a way of sort
of, we have to trust them that they’re giving us
that information. We don’t have a way of looking
at the user IDs or the trading activity and
necessarily identifying that there’s multiple
controllers.
MR. TUBRIDY: Maybe in a different
example, if the client designates advisor ABC to
be their controller, we don’t know who at
investment advisor ABC is making the trading
decisions. That we don’t have any access to. So
we know ABC, but that’s it.
MR. PUJOL: So those designations could
be essentially they’re not natural persons,
they might be entities who then have okay.
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MR. GOLLEY: Okay. So in the scenario
when client A submits their new account, they’re
under the assumption that their data is going to
be private and secure. With this rule we would
pass that information on, the FCMs would hold it,
all this confidential information. It would pass
on to the DCM. The DCM would then report it to
CFTC and there is an assumption of privacy and
security throughout the process. What level of
involvement, specifically regulation, might CFTC
have to impose to ensure that privacy and security
are maintained?
MS. SUTPHEN: You know, that’s a
difficult question to answer, but I will tell you
that and Jim will tell you this, too we have
had clients, particularly ones using algorithms
that are extremely concerned about having their
data reverse engineered and that’s why they want
to aggregate it as much as possible. So I think
that it kind of argues for the end user reporting
directly to you and not passing the information
through either of us or the TCM because they’re
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concerned that either of us are going to reverse
engineer what they’re doing.
MR. PUJOL: Do you see a need or a value
at all to CFTC regulations that might limit the
use of that data by anybody who is sort of put
through on its way to us?
MR. TUBRIDY: I’m sure it wouldn’t hurt.
You know, we are oftentimes specifically spelling
out in the documentation that we will maintain,
you know, strict security around the client
information and not give it out to anybody other
than the regulator, upon request. So something
coming from you, you know, in this new world
that’s stating that it will be secure, I think
would help the clients.
MR. MORAN: I mean, we do handle large
trader data. We’ve been handling it for many
years with a lot of protections. And I would
presume that any requirement would be that the
same protections would be placed on this data as
well.
MR. GOLLEY: One of the primary reasons
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why the Commission has proposed that the DCM
report the data to us is the problem that when we
get the trade capture report, that account number
doesn’t always seem to go back down the stream in
the same format that we get it in. So we get the
trade capture report with an account number and if
we ask the FCMs, it’s a different number, or they
may not understand what we’re asking for, et
cetera.
So, in light of that, let’s assume for a
moment that we moved the requirement of the data
from coming from DCM to the FCM, for example. And
what at that point, what are the issues that
would be involved that would have to be solved for
data to make sure the data matched? Because
ultimately, what we’re trying to do is match our
we’re trying to identify the records at the
transaction level.
the data issues
come up?
So if it pushed down, what are
other data issues that would
MS. BERDANSKY: I guess, and I would
just add one more point to that, is that we’ve
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heard from most of the exchanges at the table,
their view is that maybe this really should be
coming from the firms and not the DCMs. Do you
all have a view that it should be coming does
anyone have a view that it should be coming from
the exchanges?
MS. SUTPHEN: Well, the trade register
data is going to be standardized from the
Exchange. If you start to ask us for it you’re
going to get it in right now in a very
non-standardized way because we all capture it in
different ways. So that would be one reason.
As to the account numbers flowing
through and becoming consistent, I think we’ve
tried to get that to happen ourselves for years.
The give up process is fairly messy. It’s not
only that, brokers don’t like to put long account
numbers on before they put a trade in, so you have
to give them something fairly easy to use or they
won’t use an account number. So there’s all kinds
of messiness in the business that makes it very
difficult for us to put the ultimate account
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number for the clearing firm on a trade before it
goes in and make sure that it’s attached to the
trade the whole way across. We all would have
liked that. Everybody in operations would have
liked that, but it’s
being able to do that.
MR. TUBRIDY:
we’re a long ways from
Yeah. I think that the
simple answer is if you could rely on the register
information completely then we wouldn’t be talking
about this. And so I think we’d have to go back
to our Working Group and find out if, you know, if
it’s feasible to get that completely cleaned up so
it could be relied on.
MR. ROGERS: Would the application of
unique identifier make things better or worse in
this circumstance? I mean, from a level of effort
perspective?
MS. SUTPHEN: It would be better. It
would be better, but okay, let’s say we come up
with a unique identifier. We have a lot of work
to do to get that identifier onto the trades for
all accounts and for all controllers. So, yes, I
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mean, a unique identifier. You’d have to automate
it so that people don’t have to key it in. You’d
have to set the trade up to begin. It would be
not simple to implement. Once it’s implemented it
would be great, but it’s not a one year process to
get that in place.
question.
identify?
controller? The owner?
MR. GOLLEY: I have a higher level
What would the unique identifier
Would it identify the trader? The
MS. SUTPHEN:
tell us that, right?
MR. GOLLEY:
I think you’re supposed to
(Laughter)
All of the above. Okay,
let’s assume for a moment again we’re back to OCR,
it goes through the DCM. What systems can be put
in place, or processes can be put in place now
we’re, you know, two years past implementation?
How would it function from a standpoint of making
sure that we get all the information we need? So,
you know, day one we implement, we’ve got all the
accounts identified for the past 30 days, what’s
the mechanism’s process to make sure that ongoing
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we continue to get those updates all the way
through to the client?
MR. PUJOL: In that regard I think the
proposal calls for a change report which is
submitted only if there is a change. So maybe I
don’t know if either an addition or to Jerry’s
question, you know, is there a better way and
something different to do other than that?
MR. COOPER: I would suggest that by
reducing the fields to those that are kept
electronically in customer you know, electronic
customer static data so that then the systems
could recognize a change, and then the system
could generate when needed a change report.
That is the best way. But to the extent that
you’ve got 27 different data fields, some of which
may live in different systems, some of which may
exist only on paper currently, you’re just asking
for, you know, non-compliance and the system to
fall down, basically.
MR. GOLLEY: Okay. So the assumption
is, you know, the end of the week comes and the
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DCM identifies 3,000 new accounts but they don’t
have the corresponding OCR. What would be trigged
next? Would you that’s kind of what I’m asking
for, if somebody has to be accountable for the
completion of the complete set data complete
data set so the DCM is in a prime position to
identify what’s missing? There has to be some way
of communicating down to the FCM to say we’re
missing this information. The FCM then has to
have the ability to either pull that information
from their files or contact the client and push it
12 back up.
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MR. COOPER: Jerry, I’m assuming that
the CFTC would be looking to just to point this
out that you’re going to be looking to us to
have sprung some sort of technology-driven
exception report so we’ll identify all the
accounts that traded on our exchange in the
previous week. And if we don’t see it from each
FCM, and if the system sees that we don’t have a
change report from a new one, then that’s going to
be an exception. But what can’t be an
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exception-driven process from the DCM would be if,
you know, Sally Smith got married and changed her
name to Sally Brown or Sally Smith moved from, you
know, First Street to Second Street, obviously we
can’t do.
MR. TUBRIDY: Can I just back up to your
previous question? And then I want to follow up
on Carl’s comment.
Talking about the unique identifier,
another thing to consider is all the systems that
would have to be updated to contain that
identifier, you know, notwithstanding we don’t
know what we’re identifying yet.
systems would have to be updated.
But all the
Everybody
the communication between the firms and the
clients, to give them that unique identifier,
that’s going to take a lot of time and a lot of
coordination. But just, you know, just thinking
about all the systems that you’re going to have to
change file formats for, order routing, execution,
all of that. So it’s a big undertaking. I’m not
saying it’s not the right ultimate idea, but I
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would try to get there without changing every
system that’s involved.
In terms of, Jerry, I’m a little bit
confused about what we’re doing and the way you’re
describing the OCR reporting. Are you assuming
that we’re going to give you all of the accounts
that are reportable, like within the last 30 days
and then keep building on that as these accounts
become reportable?
MR. GOLLEY:
MR. TUBRIDY:
That’s exactly right.
Okay. Because we are
doing that. In large trader, we’re giving the
reportable accounts.
MR. GOLLEY: It’s going beyond that.
Not just reportable from a large trader
standpoint, but all accounts.
MS. BERDANSKY: I think we’re using the
wrong term. I mean, I think initially we had, you
know, want to collect this for all the active
accounts, whatever the past I don’t know what
number of days or months that we use?
SPEAKER: Thirty days.
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MS. BERDANSKY: Within 30 days. But
then, moving forward we’d get a weekly change
file. If there’s any, you know for any new
accounts that have been added or, you know, any
change to the old information a new address, a
new controller that’s what the change file
would cover.
MR. PUJOL: And if nothing changes then
you don’t need to resubmit that data for that
account.
MR. TUBRIDY: Okay. And you know, I
guess to really pinpoint what needs to be done, I
think we’d have to get this all, you know, on a
white board, or something. But in terms of
capturing some of the things that you said, like
we don’t have the controller right now, we don’t
have that information. We don’t have the ability
to tell you when an account goes reportable. It
just appears in a file or on a report. And then
we don’t know we don’t know when it comes off
not being reportable either, you know, because the
position just drops below the level. And so, you
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know, systems would have to be enhanced to be able
to capture that.
And then, in terms of changing account
information, like, you know, simple things like
you want to change the way an account closes out.
You know, whether it’s FIFO, or LIFO, or whatever?
When you go into that table, the new account
the name and address table when you make that
change on trades closing out, that’ll generate a
change report. And the change reports that the
systems generate are really not very friendly in
terms of telling you what was changed. So, you
know, that would have to be improved, as well.
MR. GOLLEY: And just to reiterate, the
OCR rule would encompass all accounts, not just
large trader accounts. So when you have a new
account I’ve made the assumption that a new
account is established when you get a new client,
new client A, or new client A begins a new
splits off into another
create a new account?
MS. SUTPHEN:
I mean, what does
It’s usually based on how
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the client themselves wants to account for their
trading. So very often they’ll ask for new
accounts to identify new trading strategies, new
traders, you know. Gosh, we just -- we add I
would say the bulk of the new accounts that we add
are for existing accounts, not for new accounts.
In a new account, sure, you’re going to have new
accounts numbers for new clients, but, you
know, new clients, they don’t get -- just a few
week. It’s not on the institutional side. So,
most account numbers have to do with wanting to
enable the client to do subaccounting of some
sort.
MR. GOLLEY: And the number that’s
reported as the account number on the TCR, is that
a number that’s generated from the DCM or the FCM?
SPEAKERS : FCM.
MR. GOLLEY: So the FCM generates the
number. The DCM reports it down to us. So, okay.
MS. SUTPHEN: And there is no
standardization in that number. You probably know
that already from looking at the trade register,
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but it’s even across I mean, I’ve worked at
multiple firms on the street, as has Ray, and no
firm follows the same protocol in how they create
account numbers.
MR. TUBRIDY: Right. And the systems,
too, feeding them. Like, one front end might have
the account number left justified, right
justified, filled with zeros, filled with, you
know, whatever. And, you know, that’s what you’re
seeing in the trade register.
MR. GOLLEY:
alphanumeric, too?
MR. TUBRIDY:
Are some of them
Oh, sure. Yeah. But, you
a lot of thatknow, you’ll see a lot of that
noise in the register file because the firm will
be left justified and what the FCM has done is set
up a rule that just pulls it in and right
justifies it or just looks in certain fields. And
so, there’s lots of ways that that information is
not connecting.
MR. COOPER: And also remember the way
this is going to work, as you’ve written the rule
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now. So Sally Smith opens an account on January
2nd, doesn’t trade for three months, so no report
happens. Then she trades one lot on Komax Gold
in, you know, the first week of May. So a report
goes to CME, which is passed on to CFTC. Three
weeks later, she trades one lot of gold on MIC
Liffe US. We that’s a brand new report that
her FCM opened you know, creates and sends to
us. MIC Liffe US, which we then pass so, I
mean, it’s going to be a bunch of -- it all
depends on which exchange the account is active
on. So it will be new reports and then you
know, I don’t know where the change reports go. I
guess the change reports will have to go to those
DCMs that have had a previous report, so the
system would have to track all that.
MR. OTT: And I can’t speak for the rest
of the exchanges, but I can speak for Kansas City
in that a large percentage of our volume is based
on intermarket spreads between Kansas City,
Chicago, Minneapolis. So it’s going to be a huge
number of accounts that we’re going to report, CME
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is going to report, and Minneapolis is going to be
reporting. You’re going to get the same
information from three exchanges on a lot of
accounts. And that’s again, I’m sure other
exchanges have similar problems, as well.
MR. GOLLEY: How if this OCR rule was
approved, the proposal is that it would be
implemented in 18 months. There’s been some
comments about that not being long enough. What
would be an appropriate timeframe, and why?
MS. SUTPHEN: I think we’d prefer to
finish doing our work, you know, we’ve got a
comment that’s coming back and I think we’ve been
trying to put some estimates around that on
timelines, and I don’t think we’re quite ready
with that information yet.
MR. TUBRIDY: But one concern that’s
come out of the group is that with the Dodd-Frank
legislation, and the work that is expected to
onboard the centrally cleared swapped client, it’s
the same group of people that support that, for
that initiative, as the OCR initiative, at all the
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firms. So so we’re really staring down a
couple of big initiatives.
MR. GOLLEY: And trust me. At CFTC
we’re feeling that same pain.
MR. FABIAN: I’d reiterate that point as
well. I mean, with the sum of the unknowns out
there, you know, any estimate that we make now
based on current information, you know, could
change drastically based on future information,
SO.
MR. BOOTH: Just to add to that as well,
I mean, don’t underestimate the inability to
control the vendors in this as well. It’s not
just the people who are in the firms and the
exchanges, but, you know, the SunGards of this
world because they’re going to be busy on
everything. We don’t always have the influence
we’d like over them.
MS. BERDANSKY: So if we were moving
forward with this and we do convene an industry
group, I guess what I’m hearing is it is essential
to include the vendors, such as SunGard, and all
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the various back office systems.
MR. GOLLEY: In the beginning comment
area when people were talking there was, I think,
a couple of different comments that there might be
other ways to get this information faster.
Fundamentally, I view the OCR, or at least getting
the ability to tie the transaction to the large
traders, paramount to what we do at the
Commission. So what are some of the ideas at this
table of other ways we can get that connection
created?
MR. TUBRIDY: Yeah, we’ve talked about
that in terms of, you know, we know where the
datasets are that have most of the data that
you’re requiring in OCR. Some of those, like the
Form 440 doesn’t maybe go quite as far as it needs
to to support that but we think that, you know,
one idea that was floated was enhance the dataset
that the piece fits best in. So if it’s
controller information, enhance the Form 440. If
it’s client information or firm information,
enhance the 102. And not knowing how your systems
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work or how you’re organizing the data when you
receive it, you know, the thought was or the
hope was that you could pull all of these data
points together. Maybe you get three files today.
Maybe you need to get five files. And maybe, you
know, the fifth file might be a name and address
information like from the firms or through the
DCM, however it needs to flow.
You know, I mentioned earlier about
trade files at the end of the day, we could
provide you with a complete snapshot of all the
trades. You know, you raise the point of, that
would have to be reconciled with the register.
But, so but anyways, that was one idea was
fill it out. These are the things we’re talking
about with the Working Group and so we don’t have
a clear agreement or recommendation at the moment,
but that’s where we’re headed.
MS. BERDANSKY: If I understand what
you’re saying, these ideas, they’re all linked to
kind of large traders. And again, I think that,
you know, what we’ve heard today is, you know, you
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really do need this for every trade out there.
For the one lot. For the two lot. And we’ve
heard you loud and clear. And as we said in the
proposal, it’s something that we are really
seriously considering here and will take onboard
in moving forward. But I think we have to be
clear that, you know, going just, you know
identifying this for just large traders isn’t
enough either.
MR. TUBRIDY: Yeah. And I’m not
limiting it to that. You know, we could give you,
you know, our complete set of client information
in the format, you know, and obviously this is,
you know there’s work that needs to be done in
order to extract it and deliver it, but it’s
there. It’s data.
Trades, you know, we could I mean,
there’s different ways to approach it. If you’re
looking for patterns of trading, or large volume
traders in the day that go home with no position,
you know producing reports that show that,
that’s not difficult either. But we can give you,
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like I said, the complete list of clients, all the
trades, all the positions, large trader, you know,
small trader, whatever. I mean, the basic theme
in our thoughts is that let’s leverage what we
have and try not to revamp systems if we can at
all avoid it.
MR. ROGERS: So are you saying then
there might be greater flexibility if we weren’t
constraining ourselves to the concept of just two
types of file structures? Because I don’t know
that necessarily there is that constraint,
necessarily. I mean, ideas around what something
might look like would be very interesting to
consider.
MR. TUBRIDY:
suggesting.
MR. ROGERS:
Yes, that’s what we’re
All right.
MS. BERDANSKY: I think we would
definitely invite you to include that. I know you
all are still meeting and to include that in your
comment. As John said, that’s something that we
would definitely consider and we’d want to
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consider all possibilities and try to, you know,
do this in a way that is, you know, it serves our
needs but also serves your needs and is, you know,
less burdensome.
MR. MORAN: I mean, I think just to
make one more comment on that I mean, if we can
leverage the existing systems and that’s we
definitely would need to do, make changes to meet
this requirement in any way, shape, or form. It’s
the amount of changes that we would have to do.
So if we included everything that’s currently in
the proposal it becomes a much, much bigger thing.
If we can focus it on things that are more easier
to perform, but yet still perform -- meet the
objectives of getting, you know, a name on each
transaction, or at least the larger transactional
accounts, you know that’s, I think, what we’re
hoping that we can do because that can be done
with a lot less expense, in a much more reasonable
time. Whereas, if we’re starting to talk about
bigger things, like having unique identifiers for
every account, that’s when you start getting into,
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you know, just massive, massive projects and
greatly increasing the risk that, you know, the
project won’t be successfully completed. So it
would be much more it probably would be better
for you and everyone here if we can make progress
in a much more reasonable way, in a shorter period
of time than to go many, many years without any
progress, so.
MR. PUJOL: Jim, I’m not sure if I’ve
heard different things from different folks here,
but is everybody onboard with the idea that a
unique identifier is or is not a good idea?
Because it seems like I’ve heard, Jim, you’ve
suggested that would add some work and maybe some
of the FIA folks
MS. SUTPHEN: Well, no, I mean, it’s a
good idea, but is it a practical idea, is, I
think, what we’re trying to get at. And I think,
I mean, we’ve got to do some more work on that. I
think, in all honesty, a new number that has to be
assigned somehow or other is not a practical idea.
So what we have to come up with is a unique
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identifier that is some combination of existing
data that can be mapped. I don’t think we can
if we have to start tagging trades with brand new
numbers it’s a big project.
MR. PUJOL: So at that point it’s
preferable I know there’s been some concern
about date of birth, but at least name and address
are preferable to you.
MS. SUTPHEN:
MR. SHILTS:
Is that right?
Yes.
Well, just the idea about a
unique identifier. There’s probably a lot of ways
you can go about getting that. Combining several
pieces of information that you already have may
give you a unique identifier if you know, you
know, what firm, you know, their name, their
account number, and you put all that stuff
together and nobody at that firm has the same
account numbers? If that’s true, then that
becomes a unique identifier. So I think just the
idea about a unique identifier might not is not
necessarily a brand new thing that we have to
start generating. Just a thought.
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sorry.
though, even if it’s across firms?
MR. SHILTS:
MR. ANGUISH:
MR. ANGUISH: Don’t you want to
Don’t you want to identify individuals
I mean
Well, yeah.
Yeah. Well, so if, you
know, the unique identifier would include the firm
name, and the account number at the firm, and the
person’s name, and their dog’s name. I don’t
know. Some combination.
MR. COOPER: Yeah, but to follow up on
Keith’s point, I thought what we were really
trying to see is, Sally Smith’s trades at Citi.
Let’s say she hammers the buy the bid and
then, you know, moves the market and then gets off
a big sell with a manipulated price. I thought
that’s what you were trying you know, in her
Goldman account. Sorry. I don’t mean to bring
reference any FCOs by name.
MR. PUJOL: Yeah. I know Keith
represents (inaudible). I think you guys are both
right because even if the identifier includes the
name of two different firms then it’s not unique
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anymore. It’s different. It’s got
MS. SUTPHEN: We struggle with coming up
you know, the client names are free form text.
Most of our systems are really not modern and so,
if you put an extra space in there by accident, or
whatever, you’ve got a brand new client. We tried
to get around that by assigning a number to the
client. But guess what? Depending on the
London office may assign the number and then they
open another account in Tokyo, and they assign
another number and pretty soon you’ve got the same
problem all over again. So, if you want to try to
do that within a firm it’s already difficult. If
you’re going to try to do it across firms it’s
probably pretty difficult.
MR. PUJOL: Right. I want to go back to
something you were suggesting about, you know,
there are potentially different reports that could
be submitted that make this a little bit easier.
And following up on John’s point that we’re not
necessarily bound to two an OCR and a TCR are
the different reports that you have in mind do
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they still allow us to basically enrich the
databases in which the TCRs reside? Or would they
are you envisioning something that still has a
sufficient connectivity to the TCR or is it such a
separate report that you can analyze that report
richly but you can’t link it to other things?
MR. TUBRIDY: The idea yes. The idea
would be to try to give you the same information
you’re getting out of the TCR. The problem, as
Jerry points out, is that would have to be
reconciled to the TCR. And maybe we’d have to
come up with some kind of an understanding of
what’s involved in that. Today firms do reconcile
their books to the TCR every single day. You
know, not necessarily based on that account number
though; based on, you know, the number of trades
at a particular price in a particular contract.
And so, you know, if we were comfortable with
putting that responsibility on the FCM, if you
were comfortable with that, and then the FCM
provided you with an equivalent of the TCR each
FCM provides that -- that would show you the
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ultimate account number. So those are just some
loose thoughts.
MR. PUJOL: No, no. I understand you’re
sort of thinking off the top of your head because,
certainly, I think one thing we’d want to avoid is
having, you know whereas we’re trying to create
increased connectivity between databases, I think
we’d want to avoid a situation where we now have
to have a third source that we independently
analyze.
MR. TUBRIDY: Right. Yeah. No, I get
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MS. BERDANSKY: I think the key for us
is if we got those type of reports is just
to be able to integrate it into our existing
you know, it, of course, would have to be
standardized and like Sebastian said, really the
ability to state to really integrate it into
our system, so we can use it, you know, and have
one big picture which is the goal of this whole
project.
MR. TUBRIDY: And then if the data did
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come from the FCM, would we then be able to
capture that account partitioning that you
identified in one of your diagrams? Would that be
spelled out?
MR. PUJOL: We’d eliminate it, you know.
MR. TUBRIDY: You would show the
aggregation?
MR. PUJOL: Yeah. We would show you the
ultimate resting place for that trade. So you
wouldn’t see all the short codes or the APS
suspense accounts that are used.
MR. GOLLEY: Okay. I think we’re kind
of trying to wrap it up, so I just want to I’ve
kind of got I’ve got a better understanding of
how this might play out, and some other ideas. Is
there anybody that wants to say their last bit of
peace? Rachel?
MS. BERDANSKY: You know, I just want to
thank everybody. I know how much time that people
put into thinking about these issues before
attending and, you know, statements and
presentations. And this has been helpful and we
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certainly will take this onboard together with the
comments.
MR. PUJOL: And I think, you know, we’ve
said this in the proposal, but it’s probably worth
repeating, that we are certainly looking to be
educated here. So the time and effort that you
put not only into today but into your written
comments I think will pay off because we will read
them carefully and we will listen to what’s being
said. Thank you.
MR. GOLLEY:
MR. COOPER:
Thank you very much.
I’d just like to supplement
our comments. Obviously we’ll submit a written
comment as well, but I guess I’d like to highlight
a concern that you know, we’ve been through
advanced notice proposed rulemaking a year ago
now-ish, right?
rule.
And now we have this proposed
Thankfully, the comment period has been
extended through October 7th, so thank you for
that. But still, it seems like we’re an awfully
long ways down, sort of, the road towards
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something when we’re having, sort of, this level
of still dialogue on, you know, basically white
boarding what a solution will look like.
So I guess I have a concern about that
because I think one thing that certainly comes to
my mind out of this discussion is we need an
industry-wide solution in a common format, common
protocols, and it just seems like we’re still a
ways away from that.
And with, procedurally, the proposed
rulemaking out there, it seems like we’re close to
the, you know, commission potentially acting when
we don’t really know how procedurally you know,
how the systems are going to work.
MR. GOLLEY: As Rachel pointed out, it’s
kind of an educational process for us but the fact
that this need has been there for multiple years
indicates how important this relationship is. I
mean, to get this OCR information is critical.
And what we’re trying to do is identify the best
way to do it that will get us what we need that
will impact the markets the least, so.
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MS. BERDANSKY: I guess I would also add
to that is that, you know, after getting the
comments, looking at them and thinking about what
was said today, that, you know, if we were to come
up with a, you know, final rule that was
dramatically different I mean, it’s one thing
to be dramatically different if we had, you know,
all this stuff out here and we just narrow it
down, but if it was going to fundamentally kind of
change, you know yes, we’re convinced it really
shouldn’t be on the exchanges to give it to us
we’re going to go look to the FCMS then we
would probably, I think very likely, repropose and
have more opportunity for comment.
MR. TUBRIDY: I just wanted to say a
couple of things. Thank you for bringing us here
and listening to our concerns and your thoughts
and, you know, the work that’s gone into analyzing
this.
You know, we would love to have
representation from the CFTC on our Working Group
to help, you know, work through these things
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because we think that they’re you know, like I
said earlier, we can only go so far in what we can
do versus what you’re able to do on your side. So
I just want to put that out there. We welcome
your participation.
MR. MARTINAITIS: I do have one final
question before we wrap it up. This is for IBs
and CTA CPLs, if we turn our attention back to the
28 data points that are in the currently proposed
OCR, are any of those data points -- does that
data solely reside at the IB level, or the CTA CPL
level, or is it elsewhere, like at a FCM?
MS. SCHRAMM: Speaking for IBS, no.
None of that information is exclusive to the IB
level. The IB often, as we said before, will use
a piece of government issued ID in order to know
his customer in order to fulfill those
requirements. But as long as the FCM has a
certain type of paperwork they want filled out,
they require certain information, they have equal
information.
MR. PUJOL: All right. I think unless
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1 anyone has
2 for coming,
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anything further, thank you very much
everybody.
(Whereupon, at 4:22 p.m., the
PROCEEDINGSwere adjourned.)
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CERTIFICATE OF NOTARY PUBLIC
I, Carleton J. Anderson, III do hereby
certify that the forgoing electronic file when
originally transmitted was reduced to text at my
direction; that said transcript is a true record
of the proceedings therein referenced; that I am
neither counsel for, related to, nor employed by
any of the parties to the action in which these
proceedings were taken; and, furthermore, that I
am neither a relative or employee of any attorney
or counsel employed by the parties hereto, nor
financially or otherwise interested in the outcome
of this action.
/s/Carleton J. Anderson, III
Notary Public in and for the
Commonwealth of Virginia
Commission No. 351998
Expires: November 30, 2012
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